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Author: 


Porte,  Roy  Trewin 


Title 


How  to  figure  costs  in 
printing  offices 

PIclCS' 

Salt  Lake  City 

Date: 

1921 


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Porte,  Roy  Trewin 

How  to  figure  costs  in  printing  offices,  by 
R.T.  Porte  ...  Rev.  ed.   ^alt  Lake  City, 
Porte  pub.  co.,  1321. 

xiii,  143  p»  diagrs.,  forms.  13  cm. 


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How  to 

Figure  Costs 

in 

Printing  Offices 


HOW  TO  FIGURE  COSTS 
IN  PRINTING  OFFICES 


By 

R.  T.  PORTE 

Author  of 

"Practical  Cost  System  for  Printing  Offices" 

"The  Printers  of  Chiapolis" 

Compiler  of 

The  Franklin  Printing  Price  List 


REVISED  EDITION 


1921 

PORTE  PUBLISHING  COMPANY 

SALT  LAKE  CITY,  UTAH 


-l^-u  -  l^^oo 


Copyright,  1921,  by 
R.T.PORTE 


k 


CONTENTS 

Preface •  •  ^ 

Introduction ix 

Factors  of  cost  and  profit x 

Overhead  diagram xii 

Figuring  the  payroll 1 

Time  summary 4 

Payroll 8 

Building  expenses 13 

Floor  space  diagram 19 

Figuring  the  inventory 25 

Plant  inventory 30 

Replacement  values 37 

Depreciation  table 39 

Interest,  insurance,  taxes  expense 45 

Distributing  power 57 

Plant  layout 59 

Light,  toilet,  elevator  expense 71 

Department  expenses,  spoilage,  stock  handling  ...  79 

Salaries  of  foremen  and  superintendents 89 

Selling  expense 97 

Administration,  commercial   investment 105 

Office  expenses 113 


5( 


iv  CONTENTS 

Answers  to  questions 123 

Wages  plus  overhead 124 

Outside  work 130 

Newspaper  and  job  plant 132 

Cost  of  advertising 134 

Commercial   investment 139 

Selling  hour  costs 140 


m 


PREFACE 

There  is  no  claim  on  the  part  of  the  author 
that  all  the  ideas  put  forth  in  this  volume  are  by 
any  means  original,  nor  are  they  all  his  own. 
The  main  purpose  and  intent  of  writing  what 
is  given  here  is  to  put  forward  every  point 
that  is  necessary  for  the  figuring  of  a  cost 
system  according  to  the  methods  adopted  by 
the  devisers  of  modern  Cost  Systems  for 
printing  offices,  based  on  chargeable  hour 
methods. 

In  the  years  that  I  have  been  privileged  to 
do  Cost  System  work,  I  have  felt  the  neces- 
sity of  such  a  book  as  this  for  the  cost  clerk 
and  for  printers,  telling,  not  only  how  the  work 
should  be  done  and  why,  but  showing  how 
by  practical  examples. 

Printers  without  cost  systems  have  read  a 

great  deal  of  why  they  should  put  one  in,  but 

rarely  how  it  was  to  be  done.    That  there  are 
not  more  cost  systems  now  in  use  is  because 


VI 


HOW  TO  FIGURE  COSTS 


PREFACE 


vu 


printers  generally  do  not  fully  understand  the 
actual  methods  used  in  the  figuring  out  of  a 
system,  and  so  have  hesitated  to  install  a 
correct  system.  With  this  book,  and  an  ac- 
curate time  keeping  system,  there  should  be 
little  difficulty  in  putting  into  operation  a 
cost  system. 

There  is  always  need  of  expert  advice  in 
installing  a  system,  and  this  book  is  intended 
to  supply  that  need.  Having  put  in  a  cost 
system,  this  book  will  be  especially  valuable 
as  to  the  best  methods  to  be  used  in  the 
figuring  of  the  system,  and  for  the  use  of 
the  cost  clerk. 

The  arrangement  makes  it  possible  to  use 
it  as  a  textbook  for  classes  in  costs  by  organ- 
izations. The  questions  may  be  given  out  at 
the  close  of  the  session  of  the  class,  and  written 
answers  turned  in  at  the  next  session.  This 
plan  can  also  be  used  by  the  individual,  and  the 
answers  compared  with  the  explanation  as 
given,  thus  making  sure  that  every  point  is 
fully  understood. 

No  doubt  many  of  the  ideas  here  given  will 


not  be  accepted  as  correct  by  some  readers. 
This  is  to  be  expected.     Some  of  the  things 
explained  are  not  the  opinions  of  the  author. 
However,  this  is  not  a  book  of  just  one  system, 
but  of  the  several  systems  now  in  use,  and 
while  all  are  based  on  the  one  idea,  different 
methods  are  often  used  and  some  basic  propo- 
sitions in  some  systems  are  utterly  ignored 
in  others.     The  reader  has  here  put   before 
him  the  various  methods,  and  he  can  easily 
decide  as  to  which  is  the  best  or  most  prac- 
tical in  his  case,  and  ignore  the  others,  for 
there  is  no  reason  why  he  should  not  have  a 
knowledge  of  all  the  methods. 

The  answers  to  questions  in  the  last  part 
of  the  volume  take  up  many  matters  that 
could  not  be  rightly  treated  in  the  cost  system 
for  the  printing  office  alone,  and  they  also 
treat  of  some  exceptional  propositions. 

Although  I  have  from  necessity  employed 
some  positive  statements,  I  am  very  far  from 
laying  claim  that  the  last  word  has  been  said 
or  that  I  am  the  only  authority  on  the  subject. 

The  ideas  and  arguments,  as  well  as  the 


viii         HOW  TO  FIGURE  COSTS 


examples  given,  include  those  of  many  other 
authorities  and  I  merely  put  them  into  con- 
crete form,  and  present  them  in  understandable 
terms  to  the  reader. 

I  put  forth  the  ideas  and  examples  as 
given,  because  they  have  commended  them- 
selves to  me,  as  being  tlie  most  logical  and 
practical  for  the  purpose  intended,  as  well 
as  the  best  that  are  known  at  this  time. 

In  other  words,  I  have  set  forth  ideas  and 
results — with  examples — which  I  have  found 
to  be  correct,  after  a  long  practical  ex])erience 
in  cost  system  work,  and  present  them  to  pro- 
gressive printers  for  their  consideration  and 
use. 

R.  T.  PORTE. 
Salt  Lake  City,  Utah. 
November  1,  1921. 


INTRODUCTION 


In  order  that  the  items  of  expense  involved 
in  the  production  of  a  job  of  printing  may  be 
plainly  distinguished,  a  diagram  is  printed  on 
the  following  page  to  fully  illustrate  all  the 
items  that  enter  into  the  cost  of  a  job  of  print- 
ing, and  to  show  the  relationship  which  each 
item  of  cost  bears  to  every  other  item,  and  also 
the  relation  of  the  whole  to  the  selling  price. 

It  is  well  worth  close  study,  because  of  its 
graphic  portrayal  of  the  costs  of  producing  a 
job  of  printing  in  their  relative  order.  It  plainly 
shows  each  increment  of  cost  added  to  the  job 
in  its  progress  through  the  factory  and  their 
accumulation  into  the  total  cost,  profit  and 
selling  price. 

The  Stock  of  Merchandise  group  is  shown 
on  the  right.  The  guide  line  shows  the  direct 
connection  of  the  job  of  printing  through 
stock  to  cost.  The  smaller  squares  attached 
to  the  stock  square  give  force  to  the  fact  that 
the  cost  of  stock  is  the  price  paid  plus  the 
handling  cost. 


HOW  TO  FIGURE  COSTS 


INTRODUCTION 


XI 


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The  central  group  shows  the  Time  Used 
as  the  first  item  of  cost,  and  this  is  directly 
connected  with  labor,  showing  that  labor  cost 
is  a  burden  on  the  Time  Used  for  the  job  of 
printing.  Labor  cost  is  made  up  of  the  price 
paid  for  labor  plus  the  cost  of  the  non- 
chargeable  time  as  shown  in  the  diagram. 
The  non-chargeable  hours  in  a  factory  are 
carried  by  labor  and  so  add  to  the  cost  of  the 
productive  labor-hour. 

The  third  group  at  the  left  is  the  Investment 
group.     Investment  cost  is  made  up  of  rent 
and    direct    expense    plus    depreciation    and 
interest.    The  line  from  Time  Used  to  Invest- 
ment  indicates   that   this   expense    is    also   a 
burden  on  the  Time  Used.    The  line  running 
from  Investment  expense  makes  up  the  actual 
cost  of  the  Time  Used  on  the  job  of  printing. 
The  short  line  connecting  these  two  groups 
with  Office  expense  indicates  that  to  the  cost 
of  Time  Used  must  be  added  an  increment  of 
office  expense  to  complete  the  manufacturing 
cost.     To  this  cost  square  the  line  from  the 
Stock  or  Merchandise  group  also  leads  to  com- 
plete the  cost  of  the  job.    To  cost  is  attached 
the  profit,  and  to  profit,  the  selling  price. 
This  diagram  fully  illustrates  the  line  of 


Xll 


HOW  TO  FIGURE  COSTS 


INTRODUCTION 


Xlll 


relationship  of  all  the  items  which  the  cost 
of  a  job  must  include,  and  also  the  relation- 
ship of  the  cost,  the  profit  and  the  selling 
price. 

The  following  diagram  shows  the  typical 
elements  of  Burden  or  Overhead  Expense  in 
a  printing  plant  as  used  in  the  Practical  Cost 
System  for  Printing  Offices.  A  study  of  these 
expense  relations  will  make  clear  the  general 
principles  involved  in  the  classification  and 
distribution  of  the  various  items  of  Manufac- 
turing Burden  or  Overhead  Expense: 


Equipment  Charges 

Insurance 

Taxes 

Interest  on  Investment 

Depreciation 

Rent  and  Heat— Factory 

Direct  Department  Expense 
Department  Payroll 
Department  Supplies 
Repairs  to  Equipment 
General  Factory  Supplies 
Non-productive  Labor 

Power 

Fuel  Cost 

Labor  Cost 

Power  Plant  Supplies 

General  Superintendence 
Proprietor's  Salary 
Office  Payroll 
Estimating  Department 
Cost-finding  Department 
General  Office  Expense 


Fixed 
Charges 


Operating 
Charges 


Productive 

Center 
Burden  or 
Overhead 


Administrative 
Burden^Overhead 


Total 

Manufacturing 
Burden  or 
Overhead 


The  Total  Manufacturing  burden  is  made 
up  of  the  Productive  Center  (or  shop)  burden 
and  the  Administrative  (or  office)  burden.  The 
Productive  Center  burden  is  made  up  of  the 
Fixed  Charges  and  the  Operating  Charges. 
All  these  items  of  the  fixed  charges  are  in- 
cluded in  the  cost  of  operation  of  every  print- 
ing office,  however  small,  as  are  also  all  the 
items  of  the  operating  charges  except  that 
sub-items  under  pov^rer  w^ould  not  be  used  in 
many  plants.  Under  Administrative  burden 
the  item  of  general  superintendence  would  be 
used  only  in  the  largest  plants  where  a  super- 
intendent has  general  supervision  not  only  of 
the  plant  but  also  of  the  selling  and  a  part, 
at  least,  of  the  business  of  the  office.  The 
item  of  proprietor's  salary  should  appear  in 
every  plant,  large  or  small,  although  if  he 
works  in  the  shop  his  salary  would  appear  on 
the  shop  pay  roll  to  the  amount  of  his  labor 
in  that  department.  The  estimating  and  cost- 
finding  items  may  be  combined  with  other 
office  work  and  so  not  appear  as  separate 
items  in  the  cost  charges  in  medium  and 
small  shops,  but  this  work  should  be  con- 
sidered as  a  part  of  the  Administrative  burden. 


I 


i 


HOW  TO  FIGURE  COSTS 


FIGURING  THE  PAY  ROLL 


The  first  step  away  from  all  the  old  tradi- 
tions of  cost  finding  was  the  principle  of 
charging  direct  to  a  productive  center  all  of 
the  pay  roll  of  the  labor  used  in  that  center. 

The  Cost  Systems  now  used  by  the  printers 
of  America  are  different  from  any  of  the  former 
methods,  in  that  the  production  center  rather 
than  the  individual  becomes  the  unit  of  produc- 
tion. The  Accountants'  method  of  ascertain- 
ing costs  was  to  obtain  only  labor  costs  (actual 
wages),  adding  a  percentage  for  "overhead,'' 
another  for  selling,  and  then  a  profit. 

The  productive  center  method  is  to  figure 
labor  as  just » one  element  of  cost,  and  to 
divide  the  manufacturing  plants  into  produc- 
tive centers  or  units  of  production,  and  ascer- 
tain the  cost  per  hour  in  that  unit. 

The  common  term  for  productive  center  is 


■ 


2  HOW  TO  FIGURE  COSTS 

''department/'  but  this  does  not  clearly  ex- 
press the  writer's  idea,  and  is  discarded  for 
that  reason.  The  terms,  however,  are  nearly 
synonymous. 

This  is  the  most  efficient  method,  in  that 
the  material  or  machinery  used  is  the  means 
for  using  the  efficiency  of  the  workman.  Their 
efficiency  can  be  fairly  well  measured  through 
the  productive  center  records. 

To  add  more  "overhead"  to  a  high-priced 
workman  than  to  a  low-priced  one  is  unfair, 
but  is  an  inevitable  result  of  the  percentage 
methods  of  accountants.  High  wages  are 
paid  certain  employees  because  they  are  more 
efficient  and  therefore  need  less  supervision. 
When  a  man's  wages  are  raised  five  cents  an 
hour,  you  cannot  say  you  should  add  ten 
cents  more  for  supervision,  or  that  he  should 
stand  for  more  rent,  light,  power,  or  what 
not,  because  of  that  increase. 

Analyzing  the  proposition  to  the  fullest, 
any  percentage  method  based  on  price  paid 
for  labor,  gives  only  unreliable  comparisons, 
and  was  originally  adopted  only  because  no 
better  method  was  then  known.  This  method, 
of  course,  has  been  defended  time  and  time 
again  by  many  "high  authorities"  who  have 


THE  PRODUCTIVE  CENTERS        3 

written  able  articles,  but  that  was  before  the 
day  of  modern  direct  methods. 

Today  we  think  less  of  labor  costs,  and 
more  of  "efficiency  costs,"  which  the  pro- 
ductive center  method,  boiled  down,  really  is. 

The  first  item  the  cost  clerk  figures  in  the 
monthly  Summary  of  Costs  is  the  Department 
Pay  Roll.  Here,  regardless  of  anything  else, 
the  entire  pay  roll  of  each  employee  is  divided 
and  charged  to  each  productive  center  in 
which  he  has  worked  in  accordance  with  the 
hours  as  shown  in  his  time  record. 

The  usual  productive  centers  in  a  printing 
office  are  Machine  Composing  Room,  Hand 
Composing  Room,  Cylinder  Press,  with  sub- 
divisions according  to  size.  Job  Press,  Ruling 
Machine,  Cutter,  Men's  Machine,  Men's  Hand- 
work, Girls'  Machine  and  Girls'  Handwork. 
Many  offices  have  additional  productive  cen- 
ters, according  to  the  nature  of  the  work. 

The  wages  of  every  employee  who  works 
in  the  composing  room  must  be  charged  as 
a  lump  sum  against  that  productive  center, 
including  galley  boys,  distributors,  proof- 
readers, etc.,  and  this  applies  just  the  same 
to  all  other  productive  centers. 

In  many  cases,  however,  an  employee  works 


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WORKS  IN  SEVERAL  CENTERS      5 

in  one  or  more  productive  centers  in  the  same 
month.  In  that  case,  his  salary  must  be  di- 
vided and  charged  according  to  the  hours  he 
v^orked  in  the  several  centers.  There  are 
various  methods  of  doing  this,  v^hich  will  be 
described. 

One  much  used  system  provides  a  weekly 
(productive  center)  pay  roll  sheet.  One  of 
these  is  necessary  for  every  center.  If  an 
employee  works  in  more  than  one  center,  his 
name  is  entered  on  the  different  productive 
center  sheets. 

This  method  sub-divides  the  pay  roll,  and 
the  cost  clerk  can  make  up  the  pay  roll  ac- 
cording to  each  center. 

Another  method,  better  and  more  modern, 
keeps  the  time  of  each  individual  separate,  in- 
stead of  using  productive  center  sheets.  A 
sheet  with  divisions  for  six  names  is  provided, 
with  31  lines  on  the  sheet.  Under  each  head 
are  provided  three  box  heads  for  three  centers 
or  departments,  so  that  the  day's  work  of  an 
employee  may  be  divided  among  three  de- 
partments. This  blank— 14  x  8^  inches— is 
shown  on  page  4. 

If,  as  it  sometimes  happens,  an  employee 
works  in  more  than  three  productive  centers, 


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DEPARTMENT  PAY  ROLL  7 

as  many  spaces  may  be  used  as  are  necessary. 

An  Individual  Time  Division  blank,  cover- 
ing seven  departments,  is  illustrated  on  page 
6.  This  blank  is  4J  x  8J  inches  and  can  be 
punched  for  ring  binder  or  three  of  these 
forms  may  be  run  on  a  14  x  8J  sheet  of  same 
size  as  blank  shown  on  page  4. 

The  total  number  of  hours  used  in  each  of 
the  centers  can  be  added  up  at  the  end  of 
each  month,  the  rate  of  w^ages  per  hour  and 
total  multiplied,  and  actual  w^ages  for  each 
center  can  thus  be  ascertained. 

A  Total  Departmental  Pay  Roll  blank — 
8J  X  11 — as  show^n  on  page  8,  is  a  valuable 
addition  to  the  series  of  pay  roll  blanks.  On 
this  blank  is  collated  the  monthly  pay  roll 
amounts  for  each  individual  employee  in  every 
department  in  which  he  has  worked  during 
the  month  as  shown  by  the  departmental  time 
blanks.  This  blank  provides  space  for  the 
total  amount  of  the  pay  roll  of  each  depart- 
ment, the  total  chargeable  hours  for  each 
department  which  are  taken  from  the  record 
of  chargeable  and  non-chargeable  hours. 

The  labor  cost  for  the  chargeable  hour  is 
found  by  dividing  the  amount  of  the  depart- 
mental pay  roll  by  the  number  of  chargeable 
hours  of  that  department. 


8 


HOW  TO  FIGURE  COSTS 


DEPARTMENT  PAY  ROLL 


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The  percentage  of  non-chargeable,  or  non- 
productive, time  in  each  department  may  be 
found  by  adding  two  cyphers  to  the  number 
of  non-chargeable  hours  and  dividing  that 
amount  by  the  total  number  of  labor  hours 
of  that  department.  These  hours  are  found 
in  the  record  blank  of  chargeable  and  non- 
chargeable  hours.  This  percentage  is  entered 
on  this  blank  in  order  to  have  all  the  essen- 
tial time  and  pay  roll  data  convenient  for 
reference. 

Example — Chas.  Edmunds  Works  in  the 
bindery,  and  on  cylinder  and  job  presses.  He 
works  in  all  224.5  hours  in  one  month,  of 
which  he  puts  in  54.2  hours  on  the  cylinder 
press,  112.8  hours  on  the  job  press,  and  57.5 
hours  in  the  bindery.  These  amounts  consist 
of  both  chargeable  and  non-chargeable  time. 
Both  divisions  of  time  are  treated  alike  in 
figuring  the  pay  roll  in  every  case. 

Edmunds  receives  80  cents  per  hour,  or  a 
total  of  $179.60  for  his  month's  work.  His 
pay  is  figured  thus: 

Cylinder 54.2  X  80  =  $43.36 

Job  Press  112.8X80=   90.24 

Bindery   57.5X80=   46.00 


$179.60 


10 


HOW  TO  FIGURE  COSTS 


QUESTIONS  ON  THE  PAY  ROLL   11 


» 


y 


i 


There  will  be  several  employees  of  such  cen- 
ters and  their  salaries  are  added  together 
making  up  the  total  pay  roll  for  each  of  the 
centers. 

The  total  pay  roll  cost  of  the  various  cen- 
ters in  the  sample  shown  are  as  follows: 

Comp.  Cyi  P.    Jobbers     Bind'y 

John  Richards $201 .60     

Chas.  Edmunds    $43.36    $90.24     $46.00 

r\..  Xv.  Xxicics  ..••••...    ^^  X  I  •  %7v/  •..•••       ••••••       <<•••• 

Totals    $416.10    $43.36    $90.24    $46^00 

This  method  of  ascertaining  the  pay  roll  of 
each  center  can  be  followed  whether  with 
three  employees  or  a  thousand. 

A  cut  leaf  pay  roll  book  may  also  be  used, 
writing  in  heads  for  each  of  the  centers,  with 
the  employees  sub-divided,  and  practically  the 
same  method  used. 

The  method  or  manner  does  not  count  for 
so  much  as  the  result.  Obtain  this  result,  as 
long  as  it  is  accurate,  in  the  simplest  manner 
possible. 

Where  an  employee  works  regularly 
in  a  productive  center,  and  is  occasionally 
called  to  another,  it  is  the  usual  rule  to  figure 
all  except  that  portion  of  the  employee's  time 


against  his  regular  department,  unless  the  de- 
lay or  non-productive  time  is  occasioned  by 
the  other  center,  or  in  other  words,  non-pro- 
ductive time  should  generally  be  charged  to 
his  regular  productive  center. 


I. 

2. 

3- 

4- 
5- 


7- 
8. 

9- 

10. 


QUESTIONS 

What  is  the  difference  between  methods  used  by 

accountants  and  the  productive  center  methods  f 
What  is  a  productive  center? 
Should    more    supervision    be    charged    against   a 

highly  paid  man  than  a  low  paid  man? 
What  is  included  in  the  productive  center  pay  roll? 
What  about  an  employee  who  works  in  more  than 

one  productive  center? 
How  are  his  wages  sub-divided? 
Give  an  example  of  divided  pay  roll. 
What  is  the  difference  between  "department"  and 

"productive  center?" 
How  is  labor  cost  for  chargeable  hours  found? 
How  is  percentage  of  departmental  non-productive 

time  found? 


II 


FIGURING  BUILDING  EXPENSE 


Each  productive  center  occupies  more  or 
less  space,  according  to  its  needs.  The  cost 
of  this  floor  space  must  be  figured  according 
to  the  space  used  by  each  productive  center. 

If  the  building  occupied  is  owned  by  the 
concern  which  also  owns  the  plant,  a  rental 
charge  should  be  made  for  occupancy  in  the 
same  amount  as  though  the  building  was 
rented. 

Many  errors  are  made  in  figuring  floor 
space,  even  by  those  who  understand  the  prob- 
lem, and  these  should  be  discussed  before 
actual  examples  are  shown,  in  order  to  prove 
that  there  is  only  one  correct  method. 

Let  us  consider  first  the  proposition  of  the 
concern  owning  its  own  ground  and  the  build- 
ings. Because  it  has  money  thus  invested  is 
no  reason  why  it  should  not  receive  a  legiti- 
mate return  on  that  investment. 

The  building  was  probably  erected  for  the 
sole  purpose  of  housing  the  plant  and  would 

13 


14 


HOW  TO  FIGURE  COSTS 


RENTS  AND  INTEREST 


15 


cost  considerable  money  to  alter  for  another 
tenant.  That  also  should  be  considered  as  a 
factor.  It  would  be  unwise  to  take  only  the 
value  of  the  land,  the  buildings,  etc.,  figure 
the  interest  return,  taxes,  insurance,  repairs 
and  other  items  as  a  basis  for  figuring  the 
rent.  Location,  increase  in  land  values,  pos- 
sible changes  in  the  building  laws,  deprecia- 
tion of  property,  and  many  other  things  should 
be  taken  into  consideration.  The  rental  charge 
should  be  based  solely  on  the  value  of  the 
building  for  rental  purposes,  just  as  though 
the  building  were  being  rented  by  a  second 
party. 

Again,  a  tenant  (or  several  tenants)  may  be 
occupying  part  of  the  building  and  the  concern 
may  figure  that  by  this  method  it  receives  free 
rent.  This  is  of  course  a  fallacy;  and  even  if 
such  were  the  case,  there  is  no  good  reason  why 
a  proportionate  amount  should  not  be  charged 
for  the  space  occupied,  and  reckoned  as  an  ad- 
ditional source  of  income. 

If  the  building  housing  the  printing  plant 
is  owned  by  the  business  itself  or  is  listed  as 
a  part  of  its  assets,  as  in  the  case  of  a  cor- 
poration, or  is  owned  by  the  proprietor  of 
the  business,  a  rental  for  the  space  occupied 


must  be  included  in  the  monthly  expense  to 
the  same  amount  as  would  be  paid  for  the 
same   space   to   any  other   landlord.      In   the 
absence    of    any    stated    figure    the    present 
proper  rental  charge  may  be  determined  as 
follows:    Figure  the  interest  on  the  present 
sale  value  of  the  land  and  building— not  the 
appraised  value  for  taxation  purposes— at  not 
less   than   6  per   cent   per   annum   and   at   a 
higher  rate  if  local  conditions  warrant.     To 
this  amount  add  the  taxes  on   the  property 
and  the  insurance  on  the  building,  and  also 
all  the  expense  items  which  naturally  are  ear- 
ned against  such  property,  such  as  street  im- 
provements,   street   sprinkling,    sidewalk   and 
sewer  taxes   and   repairs,   using   the   average 
annual  amount.    Depreciation  on  the  building 
must  be  figured  at  a  fair  and  equitable  rate 
On    brick,    stone    and    cement    buildings    the 
usual  rate  for  depreciation  is  from  2  to   3i 
per  cent,  and  on  frame  buildings  from  5  to  7 
per  cent  per  annum,   based   on   the   building 
cost  and  the  character  of  the  building  origin- 
ally.     This   amount    is    to   be    added   to    the 
amounts  above,  the  total  divided  by  12  which 
gives  the  monthly  rental  charge  on  the  build- 
ing at  cost,  but  to  this  should  be  added  a  fair 


16 


HOW  TO  FIGURE  COSTS 


I 


R 


■■( 


I 


»l 


rental  profit,  as  the  owner  is  properly  entitled 
to  a  profit  over  and  above  the  interest  on  his 
investment.  If  the  building  is  occupied  by 
others  besides  the  printing  office  the  amount 
of  the  rental  should  be  adjusted  fairly  as 
between  the  occupants. 

When  a  loft  or  building  is  rented,  of  course 
the  rent  must  be  taken  into  account.  No 
argument  can  be  brought  against  that,  and 
even  if  the  building  is  owned  by  the  concern 
occupying  it,  a  liberal  amount  should  be 
allowed  for  a  rental  charge  on  the  space 
occupied. 

Floor  space  is  floor  space,  whether  occupied 
by  desks,  cases,  presses  or  ruling  machines. 
Each  is  placed  with  a  view  to  the  greatest 
efficiency  and  practicability.  It  would  show 
a  lack  of  wisdom  to  locate  the  salesman's  desk 
on  the  sixth  floor  rear.  It  would  be  equally 
foolish  to  put  the  stitchers  just  inside  the 
entrance.  Each  has  its  proper  place,  but  the 
floor  space  for  each  is  equally  valuable. 

The  fact  that  the  office  is  located  on  the 
first  floor  right  near  the  entrance  does  not 
enhance  the  value  of  its  floor  space  per  foot 
over  that  occupied  by  the  job  presses  which 
are  located  farther  av/ay. 


FIGURING  FLOOR  SPACE  17 

Every  inch  of  floor  space  is  of  equal  value 
to  a  plant,  and  to  say  that  one  is  worth  more 
than  another  is  to  ignore  the  fact  that  if 
conditions  in  regard  to  arrangement  of  the 
plant  were  reversed  there  could  be  no  re- 
adjustments with  reference  to  value,  of  that 
floor  space. 

In  figuring  floor  space  by  the  productive 
center  method,  each  center  is  charged  with 
the  floor  space  it  occupies  and  uses,  and  that 
only.  The  number  of  employees  working  in 
it,  whether  one  or  twenty,  'has  no  bearing 
upon  this  point.  All  the  space  is  measured 
off  and  divided  according  to  its  use. 

The  best  method  of  accomplishing  this,  is 
to  prepare  a  floor  plan  or  plat,  showing  the 
location  of  each  machine  in  correct  measure- 
ments, allowing  enough  space  around  each 
Item  of  equipment  to  enable  the  worker  to 
handle  it  efficiently.  This  will  enable  the  cost 
clerk,  by  the  use  of  a  ruler,  to  indicate  the 
floor  divisions,  and  figure  out  the  square  feet 
in  each  productive  center.  If  this  is  not 
practicable,  the  space  may  be  measured  with 
a  tape  line,  and  the  total  amount  of  space,  in 
square  feet,  for  each  productive  center  de- 
termined and  recorded. 


I 


I' I 


m 


18 


HOW  TO  FIGURE  COSTS 


All  space  occupied  by  elevators,  stairways, 
aisles,  rest  rooms,  toilets,  hallways,  heating 
plant  or  stoves  should  be  figured  out  and  not 
included  in  the  space  used  for  the  productive 
centers.  The  disposition  of  this  space  and 
the  method  of  caring  for  the  rental  of  it  will 
be  taken  up  in  a  later  chapter. 

If  a  floor  contains  more  than  one  center,  it 
should  be  figured  out  proportionately. 

It  is  being  taken  for  granted  that  the  shop  is 
already  divided  into  productive  centers,  and 
that  the  time  reports  are  arranged  according 
to  these  centers.  In  measuring  off  the  floor 
space,  be  careful  to  include  in  each  productive 
center  exactly  the  amount  used  in  each  center. 

A  diagram,  or  layout  of  a  small  printing 
office  is  given  on  page  19,  in  order  to  show 
the  method  of  measuring  off  the  floor  space. 
While  this  is  but  a  small  shop,  the  principle 
involved  may  be  applied  to  any  size  printing 
office. 

The  office  occupies  ten  feet  in  the  front  part 
of  the  building;  or  200  square  feet  of  space. 
A  dotted  line  shows  the  division  line  between 
the  office  floor  space  and  that  of  the  produc- 
tive centers. 

The  composing  room  and  bindery  occupy 


FLOOR  SPACE  DIAGRAM 


19 


•a  rxjLr 


arubT 


X 

o 
p» 

C 


20  FfctT 

Vifcw  T>utfw  fROM  Tna  Powt 


20 


HOW  TO  FIGURE  COSTS 


ill 


the  middle  portion  of  the  space,  a  distance  of 
17J  feet  back.  The  space  between  these  two 
centers  is  shown  as  being  equally  divided  by 
a  dotted  line  running  between  the  stones  and 
the  table. 

This  is  working  space,  and  necessary  to 
each;  one-half  of  the  space  is  charged  to  the 
composing  room,  the  other  half  charged  to  the 
bindery. 

The  composing  room  occupies  a  space  llj  x 
17J  feet,  or  nearly  200  square  feet. 

The  bindery  occupies  a  space  8Jxl7i  feet, 
or  nearly  150  square  feet. 

The  press  room  occupies  the  back  part  of 
the  floor  space,  and  is  divided  between  the  job 
and  cylinder  presses,  as  each  of  these  are  sepa- 
rate productive  centers.  The  division  line  is 
drawn  a  few  feet  from  the  drying  tal)le  of 
the  job  presses.  A  cylinder  press  takes  more 
room  for  stock,  handling  of  forms,  drying 
room,  etc.,  and  the  working  space  has  been 
charged  to  the  productive  centers  according  to 
the  use  as  found  in  this  case.  Each  center 
must  have  charged  to  it  all  the  floor  space  it 
actually  occupies  or  uses  in  order  to  produce 
its  part  of  the  work. 

The  job  press  room  is  8  x  12^  feet  or  100 
square  feet. 


FLOOR  SPACE  BY  UNITS  21 

The  cylinder  room  is  12  x  12J  feet  or  150 
square  feet. 

In  order  to  use  as  few  numbers  as  possible, 
and  to  get  rid  of  useless  small  figures,  the 
floor  space  occupied  by  the  various  productive 
centers,  should  be  reduced  to  fifty-foot  units. 
The  problem  is  easy,  and  saves  a  great  deal 
of  time.  When  a  space  is  96  square  feet,  it 
should  be  counted  as  two  units,  157  square 
feet  as  three  units.  Taking  the  floor  space  as 
described  and  given,  it  would  figure  in  fifty- 
foot  units  as  follows : 

^^^^ce 200sq.  ft  =  4units 

Composition  200  sq.  f t.  ==  4  units 

^^"^^n^ ISOsq.  ft.  =  3units 

J^^b^^s   100  sq.  ft  =  2  units 

Cylinders    isOsq.  ft  =  3units 

"J^^tal 16units 

Four  elements  enter  into  building  expense. 
One  is  rent,  discussed  above,  the  others  are 
heat,  janitor  and  repairs. 

Where  heat  and  repairs  are  included  in  the 
rent,  these  items  do  not  need  to  be  taken  into 
account. 

Heat  should  be  charged  against  the  produc- 
tive centers  on  the  same  basis  as  rent,  and 


22 


HOW  TO  FIGURE  COSTS 


i 


Hi 


if  produced  by  stoves,  is  easy  to  figure.  If  a 
large  heating  plant  is  used,  the  item  becomes 
more  complicated.  It  should  be  figured  on  the 
basis  of  interest  on  the  value  of  the  heating 
plant,  depreciation,  repairs,  the  cost  of  coal, 
labor,  cost  of  hauling  away  ashes  and  other 
incidental  charges,  as  well  as  for  the  space 
it  occupies.    This  problem  will  be  shown  later. 

Janitor  service,  in  the  larger  plants,  where 
this  employee  does  no  other  work  or  where 
he  gives  at  least  one-half  of  his  time  to  this 
work,  the  expense  of  janitor  work  should  be 
treated  as  a  building  expense  and  distributed 
against  the  productive  centers  in  the  same 
manner  as  rent  and  heat.  In  the  smaller 
plants  where  the  regular  employees  do  this 
work  in  the  various  departments  the  time 
used  should  be  treated  on  the  employee's  time 
report  as  non-chargeable  and  the  value  of  this 
time  should  be  charged  against  Office  Ex- 
pense. Treated  in  this  way  the  expense  of 
janitor  work  would  be  distributed  against 
the  productive  centers  as  a  part  of  the  office 
or  general  expense. 

Repairs  necessary. to  the  proper  up-keep  of 
the  building,  where  the  building  is  owned  by 
the  printing  concern,  should  also  be  consid- 


FINDING  COST  PER  UNIT         23 

ered.     The  four  items  must  be  figured  sepa- 
rately, and  totalled. 

Example— Rent    $40.00 

Janitor    25.00 

Heat 10.00 

Repairs 5.00 


$80.00 

The  total  amount  of  the  four  can  then  be 
divided  by  the  sixteen  fifty-foot  units,  to 
ascertain  the  cost  per  unit. 

Example—  $80 .  00  -f-  16  =  $5 .  00 

The  units  cost  $5.00  each  for  the  four  items 
and  the  different  divisions  of  floor  space  are 
charged  accordingly. 

Example— Of f ice   4  units  X  $5 . 00  =  $20. 00 

Composition    .  .  4  units  X    5 .  00  =    20 .  00 

Bindery   3  units  X    5.00=    15.00 

Jobbers    2  units  X    5.00=    10.00 

Cylinder    3  units  X    5.00=    15.00 

^^^^^  $80.00 

Each  division  of  floor  space  is  thus  charged 

with    the    correct    amount.      It    occupies    the 

space,  therefore  it  must  bear  the  burden  of  that 
cost. 


^ 


24 


HOW  TO  FIGURE  COSTS 


II 


i 


I. 


2, 


4- 

5- 
6. 

7- 
8. 

9- 

JO. 

II. 

12. 


13- 


QUESTIONS 

What  is  the  correct  way  in  which  to  charge  floor 

space? 
What  is  the  correct  way  in  which  to  figure  rental 

of  building  occupied  by  the  owner  f 
Suppose    the    ozvner   does    not   occupy    the    entire 

building,  but  rents  a  portion  out,  how  should  the 

rental  be  figured? 
Should  the  price  of  floor  space  be  figured  accord- 
ing to  location?    If  so,  why? 
What  is  the  best  method  of  ascertaining  the  floor 

space  occupied  by  a  productive  center? 
What  about  the  elevator,  stairway,  aisles  and  toilet 

room? 
Where  should  working  space  be  figured? 
What   is   meant    by   square   foot   and    how   is    it 

ascertained? 
Why  should  one  machine  be  charged  with  more 

floor  space  than  another? 
What  is  a  fifty-foot  unit? 
What  elements  enter  into  building  expense? 
How  should  janitor  work  be  charged  in  large  plant? 

How  in  small  plant?     Why   the   difference   in 

treatment? 
Give  example  of  division  of  building  expense  by 
units. 


111 


FIGURING  THE  INVENTORY 

The  money  which  a  man  has  invested  in  a 
plant  must  bring  him  a  suitable  interest  re- 
turn, and  must  also  provide  for  the  replace- 
ment of  the  plant  as  it  wears  out,  becomes 
obsolete  or  inefficient. 

There  can  be  no  argument  against  interest 
on  investment  being  a  legitimate  charge 
against  cost  of  doing  business  as  if  the  amount 
were  invested  in  a  loan  of  any  kind  it  would 
produce  an  interest  return  without  labor.  It 
follows  that  capital  invested  in  a  printing 
plant  must  produce  an  interest  return  before 
any  profit  can  be  figured. 

The  same  is  true  in  regard  to  replacement 
of  worn  or  obsolete  machinery  and  material. 
The  business  must  provide  for  a  replacement 
fund  sufficient  to  keep  the  plant  fully  up  to 
its  primary  value  before  any  profit  can  be 
figured.  If  a  plant  becomes  run  down  it  be- 
comes less  efficient  with  a  consequent  higher 
production  cost  and  the  keeping  of  the  plant 

25 


! 


H 


ti 


26 


HOW  TO  FIGURE  COSTS 


fully  efficient  is  a  legitimate  charge  against 
the  cost  of  doing  business  and  must  be  in- 
cluded in  the  figuring  of  cost. 

The  productive  center  method  of  figuring 
costs  on  this  necessary  phase  of  the  business 
is  based  on  the  valuation  of  the  equipment 
necessary  to  do  the  v^ork  in  that  center. 

Aside  from  the  wages  and  the  rent  paid, 
there  is  no  more  important  item  in  the  figur- 
ing of  costs  than  the  value  of  the  machinery 
and  equipment.  It  is  a  sad  fact  that  compara- 
tively few  manufacturers,  including  printers, 
know  the  value  of  their  plants,  and  yet  they 
attempt  to  do  business,  figure  costs,  and  claim 
they  are  making  money. 

The  basis  of  the  business  is  the  plant  that 
has  been  bought  and  installed,  and  although 
it  must  have  labor  and  a  place  in  which  to 
do  business,  yet  without  a  plant  there  could 
be  no  production. 

As  the  pay  roll  and  rent  have  been  figured 
according  to  the  productive  centers,  the  ma- 
chinery and  material  of  the  plant  must  also 
be  listed  according  to  these  productive  centers. 

The  three  primary  productive  centers  or 
departments  of  a  printing  office  are  the  com- 
posing room,  the  press  room  and  the  bindery. 


PRODUCTIVE  CENTERS 


27 


These  with  the  business  office  are  necessary 
to  every  printing  plant,  whether  large  or 
small.  The  office  comes  first  on  the  summary 
sheet,  and  the  value  of  the  office  furniture 
must  be  considered. 

While  the  office  is  not  a  productive  center, 
yet  it  is  the  means  of  securing  the  work,  doing 
the  necessary  accounting,  and  taking  care  of 
the  numerous  business  details.  Therefore,  the 
office  furniture  should  be  considered  an  integ- 
ral part  of  the  plant  and  its  equipment  in 
the  way  of  desks,  filing  cabinets,  safes,  type- 
writers, account  books,  etc.,  must  all  be  listed. 

The  composing  room  is  a  single  productive 
center,  but  may  be  sub-divided  into  several 
parts.  It  is  usually  sub-divided  into  hand  and 
machine  composition. 

The  press  room  can  also  be  divided  into 
several  sub-divisions  or  centers,  according  to 
the  size,  style  and  cost  of  the  presses.  The 
usual  sub-divisions  of  the  press  room  in  a 
small  plant  are  the  job  press  center  and  the 
cylinder  press  center.  In  larger  plants  a 
further  sub-division  is  necessary  as:  platens 
10  X  15  and  smaller,  12  x  18  and  larger.  Uni- 
versal or  Colt's  Armory  style,  auto  feed  platens 
10  X  15  or  smaller,  auto  feed  12  x  18  and  larger, 


fl 


■n 


I 


\i 


28 


HOW  TO  FIGURE  COSTS 


Kelly  or  other  automatic  presses.  Cylinders: 
pony  22  x  32  and  smaller,  medium  25  x  38 
to  32  X  44,  large  38  x  50  and  larger.  If  there 
are  automatic  feed  cylinders  they  should  be  in 
a  class  by  themselves.  As  many  of  these 
classifications  should  be  used  as  is  necessary 
to  properly  departmentize  the  press  room. 

The  bindery  is  capable  of  a  great  many  sub- 
divisions, from  the  simple  one  of  the  small 
shop  that  has  a  paper  cutter,  and  does  only 
such  work  as  padding,  folding,  check  binding, 
etc.,  to  larger  and  more  complicated  plants. 

The  best  method  of  taking  an  inventory 
is  to  have  a  reliable  appraisal  company  list  the 
property.  These  men  are  trained  in  this  work, 
and  will  do  it  in  a  manner  which  no  one  else 
could  hardly  equal. 

The  important  part,  however,  is  to  get  a 
correct  value  on  the  production  centers  of  the 
plant.  Costs  are  based  on  the  value  of  the 
plant,  not  what  was  actually  paid  for  the  ma- 
terial and  then  "depreciated"  by  some  sort  of 
mathematics,  but  the  actual  worth  of  the  plant 
if  it  were  to  be  replaced  today. 

There  is  a  great  difference  between  an  in- 
ventory and  an  appraisement.  An  inventory 
is  usually  based  upon  the  original  cost  of  an 


BARGAIN  PURCHASES 


29 


article,  and  a  high  or  low  price  may  have 
been  paid  for  it — quite  different  from  the 
market  or  going  price  of  such  an  article.  On 
the  other  hand,  an  appraisal  is  based  upon 
what  the  article  is  worth  to-day,  and  then 
depreciated  for  insurance  and  taxation  pur- 
poses according  to  style  or  type  of  article,  its 
age  and  efficiency.  There  is  at  all  times  a 
junk  value  to  an  article,  aside  from  its  effi- 
ciency or  productive  value,  and  this,  of  course, 
must  be  taken  into  consideration. 

In  figuring  out  a  plant  for  cost-finding  pur- 
poses many  err  in  putting  a  low  valuation  upon 
machinery  bought  at  an  unusual  advantage. 
Where  an  owner  strikes  a  special  bargain  in 
type  or  machinery,  the  advantage  should  not 
enter  into  the  cost-finder's  calculations  at  all. 
Material  thus  bought  has  an  appraised  value 
for  production  purposes  wholly  disconnected 
with  its  bargain  price.  Modern  cost  experts 
are  agreed  that,  for  cost  finding  purposes,  the 
inventory  of  office  and  all  production  centers 
should  be  carried  at  the  present  cost  values. 
All  replacements  of  worn  or  obsolete  equip- 
ment and  any  additions  to  the  equipment 
purchased  from  capital  stock  investment  must, 
necessarily,  be  made  at  the  present  values.  The 


I 


II 


Ik 


30 


HOW  TO  FIGURE  COSTS 


INVENTORY  BLANKS 


31 


replacement  fund  being  based  on  a  proper  per- 
centage of  the  inventory  at  present  valuation 
would  obviate  any  variation  from  that  source 
in  the  hour  costs. 

If  it  is  not  possible  to  secure  the  services  of 
an  appraisal  company  to  list  and  value  the 
plant,  it  will  be  necessary  to  do  it  in  the 
best  possible  way.  Usually  any  supply  house 
or  type  foundry  salesman  will  be  glad  to  help 
in  properly  pricing  the  material  in  a  plant. 

To  do  this  properly,  blanks  made  for  the 
purpose  should  be  provided. 

A  showing  of  a  Plant  Inventory  blank  suit- 
able for  the  needs  of  a  plant  of  any  size  is 
made  on  page  30.  These  blanks  are  8J  x  11, 
and  punched  to  fit  a  loose  leaf  binder. 

Arrange  the  sheets  according  to  productive 
centers  or  departments  and  make  additions 
from  time  to  time. 

List  each  separate  item  for  the  office — the 
filing  cabinet,  the  desks,  books,  chairs,  tables, 
rugs,  etc. 

In  the  composing  room,  each  series  of  type 
should  be  listed  on  a  separate  sheet.  Cases, 
racks,  cabinets,  etc.,  should  all  be  carefully 
described  and  listed.  This  will  allow  room 
for  additions. 


32 


HOW  TO  FIGURE  COSTS 


MAKING  AN  INVENTORY 


33 


I 


In  the  press  room  list  each  press,  with  all 
the  extras,  individual  motors,  belting,  shafting, 
including  all  wire  connections  and  cost  of 
installation,  etc. 

The  various  sub-divisions  of  the  bindery 
should  each  be  listed  separately  to  permit  of 
additions. 

As  additions  to  the  equipment  are  made 
they  must  be  entered  upon  the  proper  depart- 
mental sheets. 

When  items  of  equipment  become  obsolete 
or  worn  out  and  are  scrapped  they  should  be 
checked  off  on  the  inventory  sheet  and  the  in- 
ventory value  deducted  from  the  total  of  that 
productive  center.  When  replaced  the  new 
items  should  be  itemized  and  a  new  total 
carried  forward. 

The  loose  leaf  form  of  a  plant  inventory 
has  the  great  advantage  that  as  the  plant 
increases  new  sheets  may  be  inserted  as 
needed  for  each  productive  center. 

The  best  way  to  take  an  appraisal  is  to  list 
the  entire  plant,  and  sheets  of  paper  5|  x  8J 
inches  padded  50  sheets  to  the  pad  should 
be  provided  for  the  purpose.  Starting  from 
some  well  defined  point,  every  item  of  equip- 
ment must   be   put   down — all   tools,   except 


such  as  come  with  the  machines,  all  extras, 
belting,  shafting,  etc.  Let  no  small  item  escape 
notice.  List  the  small  things  first — the  big 
ones  last. 

Do  not  list  over  eight  items  on  one  sheet, 
and  then  number  and  put  away.  Later  they 
should  be  given  to  a  second  person  to  check 
over  to  see  if  they  are  correct  and  nothing 
left  out.  No  attempt  at  fixing  prices  should 
be  made  on  these  sheets. 

These  sheets  are  then  assorted  by  productive 
centers  and  listed  on  blank  sheets  by  some- 
body who  writes  a  plain,  legible  hand,  or  it 
may  be  done  on  the  typewriter.  Compare 
this  listing  carefully  with  the  slips,  to  see 
that  nothing  has  been  omitted. 

The  pricing  comes  next,  and  if  possible, 
secure  the  assistance  of  a  well  posted  printers' 
supply  salesman.  Most  of  them  will  be  only 
too  glad  to  help  you,  and  their  employers 
will  sanction  anything  of  this  kind,  as  they 
know  the  value  of  an  inventory  or  appraisal 
for  obtaining  costs. 

There  are  often  questions  arising  as  to  what 
equipment  is  to  be  included  in  a  productive 
center,  as  for  instance,  where  one  article  is 
used  in  several  divisions,  such  as  chases  and 


34 


HOW  TO  FIGURE  COSTS 


QUESTIONS  ON  INVENTORY      35 


ii 


sectional  blocks.  In  this  case  they  are  a  neces- 
sary part  of  the  composing  room  equipment 
in  order  that  the  type  and  plates  can  be  sent 
to  press,  and  should  be  put  in  the  composing 
room  equipment. 

The  cutter  in  the  bindery  is  often  a  prob- 
lem where  forwarders,  the  regular  stockman 
and  rulers  all  use  it.  Usually  the  split  pay 
roll  method  is  used,  creating  a  cutting  center 
or  department  and  each  man's  salary  charged 
to  it.  The  best  and  easiest  way  is  to  figure 
the  problem  carefully  and  divide  either  the 
time  or  the  equipment  according  to  the  needs. 

It  is  impossible  to  anticipate  each  point  that 
might  arise  in  a  plant,  but  the  safest  plan  is 
to  charge  each  productive  center  with  the 
equipment  made  necessary  by  either  the  start- 
ing or  the  actual  production  of  the  work  in 
that  center. 

But,  above  all,  have  a  correct  listing  of  the 
plant,  one  as  near  right  as  man  can  make  it, 
divided  as  to  productive  centers,  listed  in  such 
a  manner  that  changes  may  be  easily  made — 
either  additions  or  deductions. 


I. 


3- 
4- 
5- 

6. 

7- 
8, 

p. 

10. 

II. 


QUESTIONS 

What   is   a    prime    necessity    in   a    manufacturing 
business  f 

Is  it  necessary   in   order   to   understand   costs    to 

know  the  value  of  the  plant? 
If  so,  why? 

How  should  the  plant  he  listed? 

The  office  is  not  a  productive  center;  how  about 
that? 

What  are  the  usual  productive  centers  in  a  printing 
plant? 

Can  there  be  sub-divisions? 

What  kind  of  a  value  should  be  placed  on  the  plant? 

What  method  should  be  pursued  to  ascertain  the 

value  of  the  plant? 
How  are  additions  or  deductions  made? 
State  possible  conflictions  as  to  centers  and  how 

they  should  be  equalized? 


i 


Ill 


IV 

FIGURING  REPLACEMENT  VALUES 

The  man  who  fails  to  take  into  account  the 
possible  wearing  out  or  depreciation  of  his 
machinery  through  new  inventions,  deteriora- 
tion or  disuse,  will  some  day  find  himself 
with  a  plant  consisting  of  junk  and  the  new 
man  just  starting  in  able  to  beat  him  in  the 
race  for  business. 

These  are  competitive  days  in  the  business 
world,  and  the  man  who  does  not  keep  up 
the  youth  of  his  plant  must  fall  behind.  This 
one  factor  has  been  overlooked  by  many  manu- 
facturers, and  they  have  failed  to  allow  a 
replacement  charge  as  a  general  expense  item 
in  conducting  their  business. 

Many  have  figured  "overhead,"  which  is  a 
mythical  sum  liable  to  mean  much,  or  again 
very  httle.  This  was  generally  supposed  to 
carry  a  load  to  cover  various  expense  items  • 
but  replacement  is  not  an  "overhead"  •  it  is  a 
positive,  distinct  and  important  item  of  cost. 

37 


38 


HOW  TO  FIGURE  COSTS 


I 


It  is  not  related  to  depreciation — a  thing 
never  really  depreciates  entirely.  There  is 
always  some  value  left.  Replacement  is  a 
positive  thing,  and  if  it  is  considered  that  the 
productive  life  of  a  machine  will  be  ten  years, 
then  an  amount  equal  to  one-tenth  the  value 
of  the  machine  must  be  charged  as  a  direct 
cost  to  its  productive  center  annually. 

As  stated,  a  machine  never  depreciates  to 
the  point  of  losing  all  value.  It  has  always  a 
junk  value,  and  many  times  will  do  effective 
work  twenty  or  thirty  years  after  its  purchase. 
The  old  hand  scythe  will  still  cut  grain,  but 
the  farmer  wants  a  modern  harvester,  the  very 
latest  model.  So  with  any  machinery,  the 
latest  only  will  do,  and  a  plant  must  always 
be  kept  young. 

Figuring  a  replacement  value  of  10  per  cent 
on  each  productive  center  means  that  each 
year  one-tenth  of  the  value  is  either  laid  aside 
in  actual  money  for  replacement,  or  that 
amount  of  new  material  is  put  in  to  keep  the 
plant  young. 

That  the  difference  between  depreciating 
10  per  cent  per  year,  and  replacement  of  10 
per  cent  per  year  may  be  appreciated,  two 
tables   are  given,   presenting  the  differences. 


TIM  Pin  OINT.   WCPLACCMENT  DKDUOTID  FROM  OmcwAL  INVK8TMINT 


III 


Year 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

29 

30 

31 

32 

33 

34 

35 

36 

37 

38 

39 

40 

41 

43 

43 

44 

45 

46 

47 

48 

49 


Te« 

InTcstment 

% 

Replc'm't 

'  Bidance 

1 

1000  00 

10 

100  00 

900  00 

2 

900  00 

«l 

100  00 

800  00 

3 

800  00 
70000 

<4 

100  00 

700  00 
600  00' 

4 

<l 

100  00 

5 

60000 

<< 

100  00 

500  00 

6 

500  00 

« 

100  00 

400  00 

7 

400  00 
"300  00 

« 

100  00 

300  00 

8 

<t 

100  00 

200  00 

9 

200  00 

<< 

100  00 

100  00 

10 

100  00 

(( 

100  00 

00 

TEN  PEW  CBNT.  DEPRKCIATION  DEDgCTED  FBOW  >ALANCH 

ivestment      %    lWiw#.iaw«it   »..t. Iv— ,    »       .  i  '        _       .  .      - 


1000  00 

900  00 

810  00 

729  00 

656  10 

690  49 

53144 

478  30 

430  47 

387  42 

348  68 

313  81 

282  43 

254  19 

228  77 

205  89 

185  30 

166  77 

150  09 

136  08 

12157 

109  41 

98  47 

88  62 

79  76 

71  78 

64  00 

58  14 

52  33 

47  10 

42  39 

38  15 

34  33 

30  90 

27  81 

25  03 

22  63 

20  28 

18  25 

16  42 

14  78 

13  30 

U97 

10  77 

9  69 

8  73 

785 

706 

635 


10 
« 


«« 


u 


<« 


« 


44 
44 
44 
44 
44 

«4 
44 
44 
44 
44 
44 


Pepitdatfoa 


100  00 
90  00 
8100 
72  90 
65  61 
59  05 
53  14 
47  83 
43  05 
38  74 
34  87 
3138 
28  24 
25  42 
22  88 
20  59 
18  53 
16  68 
15  01 
13  51 
12  16 
10  94 
9  85 
8  86 
7  98 
7  18 
6  46 
5  81 
5  23 
4  71 
424 
3  82 
3 
3 
2 
2 
2 
2 
1 
1 
1 
1 
1 
1 


Balance 


43 
09 
78 
50 
25 
03 
83 
64 
48 
83 
20 
08 
97 
87 
79 
71 
64 


900  00 

810  00 

729  00 

656  10 

590  49 

53144 

478  30 

430  47 

387  42 

348  68 

313  81 

282  43 

254  19 

228  77 

205  89 

185  30 

166  77 

150  09 

135  08 

12167 

109  41 

98  47 

88  62 

79  76 

7178 

64  60 

58  14 

52  33 

47  10 

42  39 

38  15 

34  33 

30  90 

27  81 

25  03 

22  53 

20  28 

18  25 

16  42 

14  78 

13  30 

1197 

10  77 

969 

8  72 

785 

706 

635 

6  71 


Year 


50 

51 

52 

53 

54 

55 

56 

57 

58 

59 

60 

61 

62 

63 

64 

65 

66 

67 

68 

69 

70 

71 

72 

73 

74 

75 

76 

77 

78 

79 

80 

81 

82 

83 

84 

85 

86 

87 

88 

89 

90 

91 

92 

93 

94 

96 

196 
97 


Inrestment  I   % 


a 
5 
4 
4 
3 
3 
3 
2 
2 
2 


71 
14 
63 
17 
75 
38 
04 
74 
47 
22 


200 


80 

62 

46 

31 

18 

06 

95 

85 

76 

68 

61 

55 

50 

45 

40 

36 

32 

29 

26 

23 

21 

19 

17 

15 

13 

13 

11 

10 

09 

08 

07 

06 

05 

04 

03 

03 

01 


10 
u 

4( 

U 

44 

<l 

<4 

44 

41 

44 

44 

44 

H 

4( 

<4 

(< 

<< 

44 

<l 

«< 

«4 

44 

44 

44 

44 

44 

44 

44 

44 

44 

44 

44 

44 

44 

44 

44 

<4 

44 

44 

44 

44 

44 

44 

44 

U 

44 

<« 

M 


DepwdaUoB 


57 

51 

46 

42 

37 

34 

30 

27 

25 

22 

20 

18 

16 

15 

13 

12 

11 

10 

09 

08 

07 

06 

05 

05 

05 

04 

04 

03 

03 

03 

02 

02 

03 

03 

03 

01 

01 

01 

01 

01 

01 

01 

01 

01 

01 

01 

01 

01 


^fatff 


5  14 
463 
4  17 
3  75 
338 
304 
2  74 
2  47 
2  22 
200 
180 
1  62 
146 


131 
1  18 
106 
95 
85 
76 
68 
61 
55 
SO 
45 
40 
36 
32 
29 
26 
23 
21 
19 
17 
15 
IS 
13 
11 
10 
09 
06 
07 
06 
05 

63 
03 
01 
00 


40 


HOW  TO  FIGURE  COSTS 


I 


m 


The  upper  table  shows  how  $1,000  is  rei)laced 
in  ten  years,  as  should  be  figured  in  all  manu- 
facturing plants. 

The  lower  table  is  not  absolutely  correct,  but 
it  shows  that  by  deducting  10  per  cent  each 
year  from  the  amount  of  the  preceding  year, 
or  depreciating,  the  equipment  would  not  be 
entirely  depreciated  for  97  years,  an  impossi- 
ble time.  As  a  matter  of  fact,  if  decimals  are 
used,  there  would  still  be  some  left  after  1,000 
years.     It  could  never  be  depreciated  entirely. 

The  two  tables,  however,  show  quite  clearly 
the  difference  between  the  methods  of  replace- 
ment and  depreciation. 

The  inventory  is  listed  by  productive  cen- 
ters, and  the  replacement  must  also  be  figured 
for  each  productive  center. 

In  the  method  for  figuring  floor  space,  a 
small  office  was  shown,  and  for  an  example 
in  figuring  replacement,  the  equipment  as 
shown  there  will  be  used. 

The  office  furniture  is  valued  at  $251.65; 
the  composing  room  at  $1,246.32;  the  job 
presses  at  $941.84;  the  cylinder  press  at 
$1,502.85,  and  the  bindery  at  $651.84,  totalled 
as  follows : 


TEN  PER  CENT  REPLACEMENT  41 

Office $251.65 

Composition    1246.32 

Job  press 941.84 

Cylinder    1502.85 

Bindery    551  54 

Total    $4594.50 

The  plant  is  worth  $4,594.50  and  ten  per 
cent  per  year  would  be  $459.45.  This  amount 
must  be  allowed  each  year  as  a  replacement 
fund. 

As  the  summary  of  costs  must  be  figured 
each  month,  one-twelfth  of  this  amount  should 
be  used  each  month. 

$459.45 -^12  =  $38.29 

The  amount  of  the  replacement  each  month 
is  therefore  $38.29.  This  must  be  divided 
among  the  productive  centers  in  proportion 
to  the  value  of  each  center. 

For  ease  in  figuring,  each  amount  is  reduced 
to  $50  units  as  follows : 

$30  Units 
Center  Value     of  Value 

Office  $  251.65  =    5 

♦Composition    1246.32  ==  25 

Job  press 941 .84  =  19 

Cylinder    1502.85  =  30 

bindery    651.84  =  13 

Total    92 

obtaTning^|?Jf  S.  ""'''  "''"^  '^  "^^^  ^'  ^"  ^^^'"P^^  ^^^ 


42  HOW  TO  FIGURE  COSTS 

To  get  the  units,  divide  the  total  value  of 
a  center  by  50,  eliminating  the  cents  and  using 
the  composing  room  valuation  as  an  example : 

1246 -T- 50  =  24.9 

The  .9  being  greater  than  one-half,  it  is 
counted  as  a  whole  unit.  If  the  fraction  is 
less  than  one-half  it  is  disregarded.  Therefore 
the  composing  room  units  would  equal  25. 

The  total  of  92  units  represents  the  value  of 
the  plant.  The  replacement  value  for  one 
month  is  $38.29,  and  this  is  divided  by  92 
units  to  ascertain  the  value  of  each  unit. 

$38.29-^92=  .42  minus 

The  result  is  42  cents  replacement  for  each 
unit  and  it  is  an  easy  matter  to  figure  the 
replacement  for  each  productive  center,  by 
multiplying  the  units  of  each  separate  center 
by  the  value  as  follows: 

Department  Units     Value    Amount 

Office  5  X  42c  =  $  2.10 

Composition 25  X  42c  =     10. 50 

Job  press  19  X  42c  =      7.98 

Cylinder 30  X  42c  =     12.60 

Bindery    13  x  42c  =       5.46 

$38.64 


REPLACEMENT  VALUES  43 

The  table  is  not  quite  correct,  as  42  cents 
was  not  the  exact  amount.  The  balance  was 
57,  but  instead  of  carrying  out  further  deci- 
mals, it  was  counted  as  one;  57  from  92  leaves 
35 — the  exact  amount  we  have  more  than 
the  actual  replacement  value. 

In  order  that  the  figures  may  come  out 
exactly,  this  amount  is  deducted  from  one  or 
more  of  the  productive  centers— usually  those 
that  have  the  least  work,  or  are  idle.  In  this 
plant  the  cylinder  press  is  the  least  productive, 
so  the  amount  is  deducted  from  that  center,' 
and  we  find  that  our  replacement  values  figure 
as  follows: 

Center  Amounts 

Office $  2.10 

Composition 10. 50 

Job  press  7  93 

Cylinder   12.25 

Bindery    54^ 

Total  $38.29 

It  makes  no  difference  how  many  centers 
there  are,  two  or  a  hundred,  they  may  all  be 
figured  in  the  same  way. 

In  some  centers,  more  than  10  per  cent 
should  be  figured,  for  instance— type.     This 


AA 


HOW  TO  FIGURE  COSTS 


i 


wears  out  rapidly,  especially  in  exclusive  job 
shops,  and  25  per  cent  should  be  figured  on 
the  type  values.  As  10  per  cent  is  already 
figured,  all  that  is  necessary  is  to  figure  one- 
tw^elfth  of  15  per  cent  of  the  value  of  the  type 
in  addition,  which  will  give  the  amount. 

QUESTIONS 

1.  Why  should  replacement  be  figured? 

2.  Is  not  replacement  "overhead"? 
J.     What  is  depreciation? 

4.  Are  replacement  and  depreciation  the  same? 

5.  How  should  they  he  figured? 

6.  What  amount  is  generally  figured  as  replacement 

per  year  on  machinery? 
y.    How  is  the  yearly  amount  reduced  to  a  monthly 

sum? 
8.     Why  is  a  $50  unit  the  value  used? 
p.     Give  an  example  of  reducing  an  amount   to  $^0 

units. 

10.  Having  the  units,  how  is  the  replacement  value  of 

the  unit  found? 

11.  How  are   the   replacement   values   applied   to    thf 

several  productive  centers? 

12.  Should  balances  be  ignored  or  figured  in? 

ij.     How  is  extra  replacement  in  excess  of  10  per  cent 
to  be  taken  care  of? 

14.  How  many  productive  centers  may  be  figured  this 

way? 

15.  Give  an  example. 


V. 

FIGURING  INTEREST  ON   INVEST- 
MENT, INSURANCE  AND  TAXES 

An  investor  expects  a  return  on  his  money. 
He  not  only  wants  to  see  what  his  money  has 
bought,  but  wants  a  just  interest  return  at 
a  given  period  for  the  use  of  the  money. 

In  figuring  replacement,  care  has  been  taken 
that  the  value  of  the  investment  shall  always 
remain  at  par;  but  it  is  not  enough  to  keep  the 
investment  intact,  a  dividend  must  be  realized 
on  it. 

It  does  not  matter  if  the  investment  is  clear 
of  incumbrance  or  not— a  return  must  be  made 
—and  this  is  doubly  important  if  there  is  a 
mortgage  or  notes  to  be  paid,  as  the  interest 
must  be  met,  and  how  meet  it  except  by  in- 
cluding it  in  the  cost? 

A  distinction  must  be  made  between  work- 
ing capital  and  investment.  The  term  "work- 
ing capital,"  as  applied  to  a  printing  business, 
prmiarily  means  the  actual  amount  of  money 

45 


46 


HOW  TO  FIGURE  COSTS 


\ 


required  to  keep  the  business  and  shop  going 
from  month  to  month  or  year  to  year  as 
distinguished  from  the  investment  in  type,  ma- 
chinery and  other  material  equipment  which 
constitutes  the  plant  itself.  The  amount  of 
this  naturally  depends  on  the  number  of  em- 
ployees, the  volume  of  output  and  the  class 
of  product.  This  also  naturally  involves  the 
amount  of  the  wrorking  capital  tied  up  in 
"work  in  process." 

There  is  some  disagreement  among  cost 
accountants  as  to  whether  interest  on  work- 
ing capital  as  a  whole  should  be  charged  into 
costs.  There  is,  however,  almost  unanimous 
agreement  that  the  amount  involved  in  "work 
in  process"  from  month  to  month  should  be 
considered  as  an  investment  and  the  interest 
thereon  to  be  included  in  the  costs  of  each 
productive  center. 

One  of  the  highest  authorities  in  this  country 
says:  "It  seems  obvious,  upon  analysis,  that 
there  is  a  fixed  charge  for  carrying  an  inven- 
tory of  Work  in  Process."  He  says  also: 
"The  charges  for  taxes,  insurance,  interest  on 
the  investment  in  material  and  labor  will  vary 
according  to  the  volume  of  Work  in  Process 
inventory  and   the   amount   charged   to   cost 


INTEREST  ON  WORKING  CAPITAL  47 

should  be  reckoned  on  the  value  thereof,  pre- 
ferably from  month  to  month." 

Interest  on  investment  of  capital  in  equio- 
ment  of  the  factory  is  considered  a  legitimate 
part  of  factory  cost  by  all  authorities  and  the 
question  naturally  arises  why  should  not  in- 
terest on  working  capital  be  treated  the  same 
way  as  ,s  mterest  on  the  capital  invested  in 
the  factory  equipment.  Capital  invested  for 
one  use  should  certainly  be  treated  in  the 
same  manner  as  capital  invested  for  any  other 
use  m  connection  with  the  same  business 

case  S  ZT  '"  T"^^'""  P^"'"^"*  •"  the 
case  of  the  larger  plants  where  the  inventory 

of  Work  in  Process,  each  month,  runs  into 

a  considerable  figure.    In  the  smalier  printi^ 

tTtll  an7"";'^'  '"'^'""^  °"  *he  working 
capital  and  on  the  amount  involved  in  Work 

momhlv  ^"  ''  inconsiderable  that  th! 

monthly  increment  when  distributed  against 
the  productive  hours  of  the  various  cL  ers 
would  have  little  or  no  effect  on  the  hour  co 
of    hose  centers.     I„  the  small  plants,  the 
fore   It  ,s  practically  useless  to  take  the  time 
and  trouble  to  figure  it  out 

The  matter  is  treated  here  now  so  that  the 


48 


HOW  TO  FIGURE  COSTS 


PLANT  INVESTMENT  EXPENSE    49 


fB    ^ 


Student  of  cost  finding  may  have  a  complete 
understanding  of  the  principles  involved  in 
the  treatment  of  v^orking  capital  and  work 
in  process. 

In  many  plants,  also,  it  v^ill  be  found  that 
the  amount  of  v^orking  capital  v^ill  be  greater 
than  the  equipment  investment. 

Interest  cannot  be  figured  on  "good  will" 
as  the  good  will  of  a  printing  business  is  what 
the  owner  has  made  it  through  the  business 
methods  of  himself  and  his  assistants  and  the 
return  from  this  item  must  come  from  the 
increased  profits  due  to  that  good  will. 
Neither,  in  most  cases,  should  interest  be 
figured  on  copyrights,  exclusive  control,  and 
other  items  of  a  like  nature.  Profits  must 
take  care  of  all  these.  The  amount  invested 
in  equipment  and  material  should,  of  course, 
bear  an  interest  item  as  a  part  of  the  cost,  and 
the  only  way  to  be  certain  of  receiving  it  is 
to  include  it  in  the  costs ;  as  profits  are  elusive 
— cost  a  certainty. 

Interest  on  investments,  insurance  and 
taxes,  all  have  a  close  relationship.  Insurance 
is  paid  for  in  accordance  with  the  amount  of 
machinery  or  material  in  the  plant.  The  rate 
is  fixed,  and  as  much  is  paid  as  is  necessary 


to  fully  protect  the  investment.  Taxes  are 
levied  on  the  amount  of  the  investment,  in 
direct  proportion  to  its  value. 

These  three  items  being  of  a  similar  nature, 
can  all  be  figured  in  exactly  the  same  way. 
On  the  expense  distribution  forms  used  in  all 
modern  cost  systems  interest  on  investment 
is  distributed  on  one  line,  and  insurance  and 
taxes  on  another.  Some  methods  combine 
these  three  and  replacement,  calling  it  "Plant 
Investment  Expense,"  grouping  them  togeth- 
er, and  making  one  distribution.  The  latter 
method  is  often  preferred  as  being  more  sim- 
ple and  more  easily  understood. 

First  we  will  figure  interest  as  a  single  item, 
and  then  insurance  and  taxes,  and  later  on 
take  up  the  group  method. 

It  has  become  a  trade  custom  to  figure  in- 
terest on  investment  at  the  same  rate  at  which 
interest  is  figured  on  long  time  loans  in  the 
section  of  the  country  where  the  printing  plant 
may  be  located.  This  rate  is  commonly  6  per 
cent  in  the  eastern  section  and  7  or  8  per  cent 
in  the  western  portion  of  the  country  where 
interest  rates  are  higher. 

Many  cost  experts  are,  however,  of  the 
opinion  that  the  interest  rate  on  a  manufactur- 
ing investment  should  be  considerably  higher 


Ii'. 


*v 


so 


HOW  TO  FIGURE  COSTS 


than  the  interest  rate  on  long  time  secured 
loans;  that  it  should  be,  especially  on  a  print- 
ing plant  investment,  not  less  than  10  to  12 
per  cent  a  year.  On  a  long  time  secured  loan 
there  is  much  less  risk  of  loss  than  on  an 
investment  in  any  line  of  manufacturing  and 
this  risk  of  loss  is  particularly  applicable  to 
the  printing  business  as  those  familiar  with 
its  history  will  fully  appreciate. 

New  material  and  equipment  once  placed 
in  a  printing  office  and  used,  even  a  very  short 
time,  shrinks  in  value  one-half  or  more  should 
any  combination  of  circumstances  compel  an 
enforced  sale.  In  addition  to  this  shrinkage 
there  must  be  taken  into  account  the  many 
risks  of  manufacture  inseparable  from  this 
business  and  the  indisputable  fact  that  the 
printing  business,  as  ordinarily  conducted,  has 
never  shown  a  margin  of  profit  either  com- 
mensurate with  the  investment  or  large  enough 
to  make  the  business  a  safe  investment  risk. 
For  these  reasons  the  interest  on  the  invest- 
ment should  be  greater  than  the  rate  now  in 
customary  use  in  the  industry  but  until  such 
time  as  the  trade  organizations  take  action 
to  change  this  the  present  rate  must  continue 
to  be  used. 

We  have  figured  the  value  of  the  plant  at 


INTEREST  ON  INVESTMENT      51 

$4,594.50.  Using  6  per  cent  as  interest  on  in- 
vestment, we  find  that  the  return  on  this  item 
should  be  $275.67  per  year,  thus : 

$4,594.50  X  .06  =  $275.67 

This  will  amount  to  $22.97  per  month,  when 
figured  as  follows: 

$275.67-^-12  =  $22.9714 

When  6  per  cent  is  used  there  is  a  more 
simple  method  by  taking  one-half  of  one  per 
cent  as  follows: 

$4,594.50  X   .005  =  $22.9734 

Referring  back  to  where  the  replacement 
fund  was  figured,  it  is  found  that  the  plant 
contains  92  units  of  value,  so  the  interest  cost 
per  unit  is  25  cents  minus,  as  shown  below: 

$22. 97 -V-. 92=  .25  — 

The  total  interest  on  investment  ($22.97) 
should,  therefore,  be  figured  as  follows: 

Center  Units*     Value     Amount 

Office 5*  X  25c  =  $1 .25 

Composition 25     X  25c  =    6.25 

Job  press  19     X  25c  ^    4.75 

Cylinder 30     X  25c  =     7. 50 

Bindery  13     X  25c  =-     3.25 

$23.00 

*See  figuring  replacement  values  on  page  42. 


\ 


I 


V 


52  HOW  TO  FIGURE  COSTS 

This  leaves  a  balance  of  3  cents  difference 
over  the  actual  amount.  The  3  cents  may  be 
deducted  from  the  bindery  item,  making  it 
$3.22,  and  this  change  will  make  the  balance 
correct. 

Insurance  and  taxes  arc  figured  in  exactly 
the  same  way. 

Insurance  at  $2.50  per  hundred  on  $4000.00 
would  be  $100.00  per  year;  taxes  would  be 
about  $35.00  per  year;  a  total  of  $135.00. 

This  is  the  annual  cost.  To  get  the  average 
monthly  cost,  divide  by  12,  which  amounts  to 
$11.25  as  follows: 

$135.00-^  12  =  $11.25 

To  get  the  unit  of  value  cost,  this  amount  is 
divided  by  92,  the  result  being  .122  cents  as 
follows: 

$11.25-^92=  .122 

This  amount  is  then  distributed  to  the  dif- 
ferent centers  as  follows: 

Center  Unit     Value    Amount 

Office 5  X    .  122c  =  $  .61 

Composition   25  X    .122c  =    3.05 

Job  press 19  X    .  122c  =    2.31 

Cylinder 30  X    •  122c  =     3.66 

Bindery  13  X    .122c  =     1.58 

$11.21 


BURDEN  DISTRIBUTION  53 

This  is  not  quite  correct,  as  .122  is  not 
exact.  There  is  a  difference  of  .0112  cents.  This 
may  be  equally  divided  among  the  various 
centers  so  as  to  make  the  amount  exact. 

The  group  method  of  figuring  is  the  sim- 
plest, as  all  four  items  are  distributed  at  once, 
saving  a  great  deal  of  work,  and  it  is  just  as 
accurate  as  the  other. 

These  several  items  are  as  follows: 

Replacement    $38.29 

Interest  on  investment 22 .  97 

Insurance  and  taxes n  .25 

Total $72.51 

The  unit  value  of  this  amount  would  be  .788 
cents  as  follows: 

$72.51  -V-  92  =  .788  +  with  a  balance  of  .014c. 

This  amount  is  distributed  as  follows: 

Center  Unit       Value    Amount 

Office 5  X    .788c  =  $  3.94 

Composition 25  X   .788c  =     19.70 

Job  press 19  X  .788c  =     14.97 

Cylinder 30  X    .788c  =    23.64 

bindery  13  x   .788c  =     10.24 

$72.49 


54 


HOW  TO  FIGURE  COSTS 


QUESTIONS  ON  INTEREST        55 


u 


Again  the  amount  is  not  exact,  as  the  divi- 
sion showed  a  balance  of  .014  cents.  Here  there 
is  a  difference  of  2  cents.  This  amount  may  be 
added  to  the  busiest  department,  as  being 
more  easily  absorbed. 

It  will  be  seen  that  this  method  makes  the 
problem  quite  simple. 

It  must  be  understood  that  the  monthly 
amount  should  be  figured  according  to  the 
rules  laid  down  previously. 

We  have  taken  care  of  a  few  of  the  ''stick- 
ers" in  the  way  of  figuring  costs,  but  there  are 
some  other  problems  just  as  hard  to  under- 
stand, yet  as  easy  to  figure  when  fully  ex- 
plained. The  basis  of  all  being  to  charge 
direct  to  each  center  its  just  proportion  of 
expense  that  can  be  considered  as  belonging  to 
that  center.  Having  once  accomplished  this, 
and  having  the  production  of  that  center,  as 
expressed  in  saleable  or  productive  hours,  the 
problem  of  costs  is  now  in  a  fair  way  to  be 
solved. 


/. 
2. 


3- 

4- 

5- 
6. 

7- 
8. 


QUESTIONS 


Is  it  necessary  to  figure  interest  on  investment? 
Upon  what  basis  should  it  be  figured— upon  that  of 

actual  equipment  invested,  or  that  investment  plus 

working  capital  f 
Why? 

How  about  profits? 
How  is  a  fair  interest  rate  arrived  at? 
Is  the  rate  now  in  use  equitable? 

Upon  what  basis  is  this  distributed  to  the  various 
centers? 

Is  there  a  relation  between  ''interest  on  investment" 
and  "insurance  and  taxes''? 
9-  How  are  they  distributed  among  the  productive 
centers? 

Should  insurance  and  taxes  be  averaged  each  months 
What  is  the  ''group  method"  of  distributing  expense 

to  centers? 
Give  an  example. 
What  is  the  basis  of  cost  finding? 

Explain    the    difference    between    investment   and 
working  capital. 


10. 

II. 

12. 

14' 


VI 


DISTRIBUTING  POWER 

Nothing  illustrates  quite  so  well  the  princi- 
ple of  the  productive  center  being  the  correct 
unit  for  ascertaining  costs,  as  the  method  of 
figuring  the  cost  of  power.  The  primary  unit 
is  the  productive  center,  and  this  unit  must 
bear  all  the  burden  of  every  direct  cost.  For 
that  reason  power  is  always  figured  as  an 
absolute  direct  cost  against  each  productive 
center  using  power. 

Power  is  either  purchased  in  the  form  of 
electricity  from  a  distributing  point,  or  manu- 
factured by  a  gasoline  or  gas  engine,  steam 
engine  or  otherwise,  on  the  premises.  In  any 
case  the  cost  of  this  power  can  be  easily  found 
and  charged  direct  to  each  interested  produc- 
tive center. 

Where  power  is  purchased  in  the  form  of 
electricity  there  are  three  ways  in  which  the 
cost  can  be  charged  to  each  productive  center, 

57 


f 


58 


HOW  TO  FIGURE  COSTS 


fS 


LAY  OUT  OF  PLANT 


It   f' 


and  each  of  these  will  be  described,  using  as 
a  basis  the  equipment  as  shown  in  figuring  the 
floor  space.  The  plan  is  reprinted  on  the 
following  page  for  easy  reference. 

There  are  three  departments  that  consume 
power  in  the  plant  as  illustrated:  Bindery,  job 
press  and  cylinder  press.  In  the  bindery,  a 
four  h.p.  motor  is  attached  to  the  paper  cutter, 
and  a  one-eighth  h.p.  motor  to  the  stitcher. 
The  job  presses  each  have  a  one-half  h.  p.,  and 
a  three  h.p.  motor  drives  the  cylinder. 

The  most  accurate  way  to  ascertain  the  cost 
of  power  for  each  of  these  machines  is  by 
installing  a  system  of  wiring  so  that  each  pro- 
ductive center  shall  be  on  a  different  meter. 
At  the  end  of  each  month,  the  meters  will 
record  the  amount  of  electricity  consumed  in 
each  center,  and  it  is  then  an  easy  matter  to 
charge  the  center  with  the  cost  of  the  elec- 
tricity used. 

This  method,  while  the  best,  is  quite  ex- 
pensive, and  requires  special  wiring,  and  is 
not  used  to  any  great  extent. 

The  method  of  distributing  power  used  in 
modern  cost  finding  systems  is  to  distribute 
the  amount  of  the  power  bill  among  the  pro- 
ductive centers,  using  power,  on  the  basis  of 
horse-power  hours. 


I!      i 


59 


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20  rCXT 
VltW  IMVEM  rflOM  THJ»  POOCP 


60 


HOW  TO  FIGURE  COSTS 


I 

/  Ih 

ll 

i 

1'^' 

, 

p 

(   j 

To  find  the  horse-power  hours  it  will  be 
necessary  to  know  the  amount  of  power  re- 
quired for  each  machine  in  the  productive 
center.  The  horse-power  hour  is  simply  the 
power  required  to  drive  the  machine  at  its 
working  capacity,  multiplied  by  the  number  of 
running  or  productive  hours  for  that  machine, 
this  amount  equals  the  horse-power  hours. 

Where  the  different  machines  in  a  printing 
office  are  driven  by  indivichial  motors  it  is  an 
easy  matter  to  find  the  horse-power  hours  as 
the  power  of  the  motor  is  indicated  by  a  plate 
attached  to  the  motor  and  it  is  only  necessary 
to  multiply  this  indicated  horse-power  of  the 
motor  by  the  number  of  productive  hours  of 
the  machine  in  question.  When  two  or  more 
machines  are  driven  from  the  same  motor, 
particularly  if  the  two  machines  belong  to  a 
different  productive  center,  it  will  be  necessary 
to  have  a  little  additional  information. 

A  10x15  or  smaller  job  printing  press  re- 
quires one-half  horse  power,  larger  than  a 
10x15  three-quarters  horse  power,  while  the 
Universal  type  jobber  requires  one  horse 
power.  The  average  pony  cylinder  press  re- 
quires about  one  and  one-half  horse  power,  a 
drum  cylinder  newspaper  press  two  and  one- 


FINDING  HORSE-POWER  HOUR   61 

half  horse  power,  and  the  two  revolution 
cylinders  require  from  three  to  five  horse- 
power, according  to  size. 

Where  two  or  more  machines  are  driven 
from  the  same  motor  it  will  be  necessary  to 
multiply  the  power  needed  to  drive  each  ma- 
chine by  the  active  hours  of  that  machine, 
which  will  give  the  horse-power  hours. 

Where  the  machinery  of  the  entire  plant  is 
driven  from  one  large  motor,  the  same  pro- 
cedure must  be  used  to  find  the  horse-power 
hours  of  each  department. 

In  some  printing  offices  a  gas  or  gasoline 
engine  is  still  used  for  power  and  it  will  be 
necessary  to  find  the  amount  of  the  power  bill 
in  such  case.  The  power  bill  will  then  be 
represented  by  the  cost  of  running  the  engine 
which  would  be  made  up  of  the  cost  of  the 
gas  or  gasoline  used  during  the  month,  lubri- 
cating oil,  waste,  rent  of  space  used,  repairs, 
depreciation,  interest  on  investment,  and  all 
other  items  of  expense  properly  chargeable 
against  the  engine  to  which  must  be  added  a 
charge  for  the  time  or  labor  used  in  caring 
for  the  engine.  The  total  of  these  costs  would 
represent  the  power  bill  for  the  month  which 
would  then  be  divided  against  the  productive 


¥, 


I    I 


62 


HOW  TO  FIGURE  COSTS 


i! 


centers  in  proportion  to  the  horse-power  hours 
of  each. 

With  an  installation  of  this  kind  it  will  be 
necessary  in  cost  finding  for  the  month,  to 
in  some  way  distribute  the  cost  of  the  engine 
and  its  equipment  among  the  productive  cen- 
ters. This  can  be  done  through  the  inventory 
by  charging  against  each  productive  center  an 
amount  of  the  cost  of  the  engine  and  its  equip- 
ment in  proportion  to  the  horse-power  re- 
quired by  these  centers.  This  is  a  rather 
cumbersome  method,  however,  and  the  better 
way  is,  in  case  of  either  a  gasoline  or  steam 
engine  installation  to  drive  the  plant,  to  make 
an  entirely  separate  center  of  the  power  de- 
partment. Where  this  is  done  the  rental  for 
the  amount  of  space  occupied  by  the  engine, 
the  interest  on  investment,  insurance  and 
taxes,  its  depreciation  or  replacement  value, 
the  labor  of  attending  to  the  engine,  all  fuel, 
whether  gas,  gasoline  or  coal,  all  lubricating 
oils,  etc.,  and  in  the  case  of  a  steam  engine, 
the  expense  of  hauling  away  the  ashes,  should 
all  be  included  as  a  part  of  the  cost  of  running 
the  power  plant,  the  total  of  all  these  various 
items  makes  up  the  cost  of  the  power  which 
must    be    distributed    among    the    productive 


HORSE-POWER  UNITS 


63 


centers  on  the  basis  of  the  horse-power  hours. 
To   distribute   the   power   bill   against    the 
productive  centers  or  the  individual  machines 
in  these  centers,  we  first  find  the  total  of  the 
horse-power   hours   of   all    the   machinery   in 
the  plant.    The  total  of  the  power  bill  is  then 
divided  by  the  number  of  horse-power  hours 
to  get  the  unit  of  cost  per  horse-power  hour. 
In  many  cases  it  is  advisable  to  use  5  or  10 
horse-power  hours   as  a  unit   of  distribution 
on  account  of  the  greater  simplicity  in  figur- 
ing.   In  either  case  the  result  will  be  the  cost 
of  the  unit  of  horse  power.    Then  multiply  the 
horse-power  hours  of  each  productive  center 
by  this  unit  and  this  will  give  the  cost  of  the 
power  for   that   productive   center.      If  it   is 
desired  to  get  the  horse  power  cost  for  each 
machine  in  a  productive  center  this  can  be 
done  by  a  little  further  extension  of  the  same 
method,  that  is  by  multiplying  the  unit  cost 
of  the  horse-power  hour  by   the   number  of 
horse-power  hours  of  each  individual  machine. 
When  this  work  is  completed  again   total 
the  amounts  of  power  to  be  charged  against 
each  productive  center  and  see  that  this  total 
equals  the  amount  of  the  power  bill.    In  many 
cases  there  will  be  a  little  variation  as  was 


!l 


c 


I 


64 


HOW  TO  FIGURE  COSTS 


shown  in  the  distribution  of  interest,  insur- 
ance and  taxes.  This  variation  over  or  under 
the  total  power  bill  should  be  distributed  be- 
tween the  productive  centers,  either  adding 
to  or  deducting  from  the  productive  center 
which  has  been  most  active  and  is  best  able 
to  stand  the  difference. 

When  this  work  is  completed  the  power 
charge  for  each  productive  center  can  be  trans- 
ferred to  the  distribution  blank  under  the 
proper  column. 

In  many  printing  offices  a  portion  of  the 
machinery  will  be  driven  from  one  large  motor 
while  some  few  of  the  other  machines  will 
have  individual  motors.  In  such  case,  dis- 
tribute the  power  cost  of  the  large  motor 
against  the  departments  in  horse-power  hours 
and  add  to  this  the  horse-power  hours  of  the 
smaller  individual  motors,  then  distribute  the 
entire  power  bill  as  shown  above. 

In  many  offices  where  a  gas  or  gasoline 
engine  or  a  large  motor  is  used  for  the  heavier 
machines,  the  typesetting  machine  is  usually 
driven  by  an  individual  motor.  In  such  offices 
this  motor  is  very  often  connected  up  to  the 
light  circuit  instead  of  the  power  circuit.  So 
also  in  many  offices  a  small  machine  like  a 


MACHINES  ON  LIGHT  CIRCUIT   65 


stitcher  is  also  connected  to  the  light  circuit. 
Where  this  is  done  there  would  be  no  distinc- 
tion in  the  bill  from  the  electric  company  as 
between  the  light  used  and  the  power  used 
for  these  light  machines.  These  machines 
should,  of  course,  be  charged  with  the  power 
which  they  use  and  this  can  be  found  as 
follows:  Electric  light  bills  are  usually  ren- 
dered at  a  specific  price  per  kilowatt  hour  of 
the  current  used.  The  motor  on  a  type- 
setting machine  is  usually  one-fourth  and  that 
on  a  wire  stitching  machine  is  usually  one- 
eighth  horse-power.  In  either  case  you  would 
find  the  horse-power  hours  by  multiplying 
the  power  of  the  motor  by  the  number  of 
active  hours  the  machine  has  been  run  as 
shown  by  the  time  records.  Then  multiply 
the  horse-power  hours  of  each  of  these  motors 
by  .746  and  the  result  will  be  the  number  of 
kilowatt  hours  consumed  as  power  for  these 
machines.  It  will  then  only  be  necessary  to 
multiply  these  kilowatt  hours  used  as  power 
by  the  price  per  hour  as  shown  on  the  electric 
bill  to  obtain  the  amount  to  be  charged  against 
these  machines  for  power.  This  amount 
should,  of  course,  be  deducted  from  the  elec- 
tric bill  and  the  remainder  entered  as  light 
on  the  cost  distribution  blank. 


I 

f 
i 


i-i 


66  HOW  TO  FIGURE  COSTS 

In  the  small  plant  used  as  an  illustration 
the  distribution  of  power  under  this  plant 
would  be  worked  out  as  follows: 

The  cutter,  as  an  example,  ran  32  hours  in 
one  month,  the  stitcher  16  hours,  one  job 
press  160  hours,  the  other  85  hours,  and  the 
cylinder  24  hours. 

Multiplying  these  various  hours  by  the  indi- 
cated horse-power  motors,  shows  the  following 
results : 

Machines  Hrs.  Run    Size  of  Motor    H.  P.  Hrs. 

Cutter 32         X  4  =.       128 

Stitcher 16        X  %  =-  2 

Job  press  No.  1 ...   160        X  Yi  =•        80 

Job  press  No.  2. . .     85         X  J^  =•        43 

Cylinder 24         X  3  =         72 

Total 325 

By  centers  the  result  would  be  as  follows: 

Bindery — Cutter . .   128 

Stitcher 2 

Total   7777.... 130 

Job  press — Press  No.  1 80 

Press  No.  2 43 

Total 123 

Cylinder 72 

Total    325 


I       Y: 


HORSE  POWER  DIVISIONS        67 


Each  center  is  thus  figured,  and  the  total 
h.p.  hours  of  the  various  machines  are  charged 
as  a  cost  to  each  center.  The  cost  of  the  power 
was  $13.00,  and  the  unit  of  distribution  to 
the  various  centers  is  found  by  dividing  this 
amount  by  the  total  h.p.  hours,  thus: 


$13.00  -V-  325 


04 


The  result  being  a  cost  of  4  cents  per  h.p. 
hour,  each  center  is  charged  on  this  basis,  as 
follows : 

H.P, 
Center  Hours    Cost       Totals 

Bindery  130  X  4c  =-  $5.20 

Job  press 123  X  4c  =     4.92 

Cylinder 72  X  4c  ==     2.88 

Total $13.00 

The  job  presses  are  charged  with  a  larger 
proportion  of  the  power,  because  they  are  used 
more;  the  cylinder  with  less,  because  it  is 
used  less.  This  method  has  been  adopted  as 
the  standard  by  all  cost  experts  using  the  pro- 
ductive center  method  of  ascertaining  costs. 
The  flexibility  and  justness  can  easily  be  seen 
by  the  examples  shown. 

One  wonders  why,  under  the  old  accounting 
methods,   power  was   thrown  into   a   general 


Ill 


68  HOW  TO  FIGURE  COSTS 

hopper  called  "overhead,"  and  tacked  by  per- 
centages onto  labor,  material  or  something 
else,  none  of  which  had  anything  to  do  with 
the  amount  of  power  consumed.  The  direct 
cost  method,  the  productive  center  idea,  shows 
up  with  complete  certainty  as  being  correct, 
as  each  item  of  cost  is  analvzed. 

The  following  will  give  a  good  idea  of  how 
to  figure  the  cost  of  a  privately  owned  power 
plant,  the  amounts  being  purely  estimated, 
and  the  total  brought  to  the  same  figure  as 
used  before  for  example  only: 

Cost  per  Month 

Rent  for  space  occupied  by  engine $  2 .  00 

Fuel  used 4 .  50 

Oils,  waste,  etc 50 

Repairs l.QO 

Labor l.QO 

Interest  on  investment,  replacement,  etc. .     4 .  00 

$13.00 

When  all  the  machinery  is  driven  from  one 
power  unit  the  cost  of  running  the  shafting 
can  be  figured  against  the  individual  centers 
or  ignored  as  an  item,  and  each  machine  will 
bear  its  burden  according  to  the  hours  run. 
Theoretically  each  1000  pounds  of  shafting 
and  pulleys  absorbs  a  half-horse  power,  but 


It 


SHAFTING  AND  BELTING  LOSS   69 

in  many  establishments,  owing  to  the  im- 
proper manner  in  which  the  shafting  is  hung 
and  lined  up,  the  power  absorbed  will  often 
reach  to  a  half  more,  or  even  double  that 
amount.  Belt  friction  and  slippage  also  ab- 
sorbs a  very  appreciable  amount  of  power. 
Under  average  conditions  this  amounts  to  25 
per  cent.  For  instance,  a  belt  taking  2  horse 
power  from  the  driving  pulley  will  deliver 
but  1|  horse  power  to  the  driven  pulley. 

Because  of  the  intricate  figuring  required 
to  properly  distribute  the  power  absorbed  by 
shafting  and  belting  it  is  the  better  plan,  in 
most  shops,  to  ignore  this  item  as  it  will  be 
fully  cared  for  in  the  regular  distribution  of 
the  power  and  the  variation  from  the  true  cost 
on  any  one  machine  or  center  would  be 
negligible. 

These  power  losses  through  shafting  and 
belting  become  a  considerable  amount  in  the 
course  of  a  year  and  constitute  a  strong  argu- 
ment in  favor  of  installing  individual  motors 
for  each  machine  in  the  plant. 

There  are  methods  by  which  testing  machines 
as  to  the  h.p.  required  (with  and  without  load) 
may  be  used  and  various  other  similar  ideas, 
but  when  figured  out  the  result  is  so  very  little 


I! 


i  i 


4 


70 


HOW  TO  FIGURE  COSTS 


different  from  the  h.p.  hour  basis,  that  it  is  a 
waste  of  time. 

It  must  be  remembered  that  in  each  case 
the  running  time,  exclusive  of  make-ready  of 
each  machine  is  used  as  a  basis  for  figuring 
the  h.p.  hours. 


QUESTIONS 

1.  In  what  way  is  power  figured? 

2.  In  how  many  different  ways  may  power  be  secured f 
5.    In  how  many  ways  can  power  be  figured  when  pur- 
chased direct? 

4.  How  may  meters  be  used? 

5.  What  is  h.  p.  hour? 

6.  How  are  h.  p.  hours  found? 

y.     Give  an  example  figuring  h.  p.  hours. 

8.     Distribute  cost  to  productive  centers  on  the  above 

basis. 
p.     What  other  methods  may  be  used? 

10.  Can  cost  of  privately  manufactured  power  be  found 

by  productive  centers? 

11.  Give  example. 


VII 

FIGURING  LIGHT,  TOILET  AND 
ELEVATOR  EXPENSE 

Of  all  the  expenses  that  enter  into  the  cost 
of  production,  possibly  these  three  have  had 
the  least  attention  of  any  other  items.  The 
small  plant  paid  but  little  attention  to  them, 
as  the  combined  cost  of  the  three  is  very  small, 
yet  they  constitute  a  factor,  and  however  small 
must  be  taken  into  account  in  figuring  costs. 

Some  cost  systems  still  use  the  older  method 
of  light  distribution  which  is  therefore  given 
here. 

Light — In  a  small  office,  or  when  the  cost 
of  light  is  less  than  $50.00  a  month,  this  can  be 
very  easily  figured  as  a  general  expense,  and 
will  receive  its  final  distribution  to  the  various 
productive  centers  when  that  expense  is  taken 
care  of. 

When  light  costs  more  than  $50.00  a  month, 
and  runs  into  a  considerable  sum,  a  careful 
record  should  be  kept  of  the  amount  used  in 
the  various  divisions,  including  the  office. 

For  example,  we  will  assume  that  the  cylin- 
der press-room  has  done  considerable  overtime, 

71 


I 


• 


0  \ 


i  ^ 


i 


^.t 


I 


72 


HOW  TO  FIGURE  COSTS 


that  the  daylight  was  not  good  and  that 
a  great  deal  of  electricity  in  the  form  of  light 
was  consumed.  The  other  general  productive 
centers  may  not  have  used  very  much,  and 
therefore  should  not  bear  the  burden  of  the 
increased  cost  of  light. 

The  foreman  of  each  department  should 
send  in  a  report  each  day  of  the  number  of 
lamps  and  the  number  of  hours  they  were 
used.  A  press-room  has  forty  lamps  of  40- 
watt  consumption  per  hour.  Only  twenty  of 
these  may  be  used,  or  perhaps  thirty-five.  It 
is  a  simple  matter  for  him  to  report  as  to  the 
consumption,  and  a  blank  modeled  on  the 
following  lines  will  be  found  admirable. 


Productive  Center 

Date ,  192. 

No.  lamps  used Size Watts.... 

No.  hours  turned  on 

Signed  


Foreman. 


The  cost  clerk  can  keep  the  record  of  the 
lights  used  in  the  office  in  the  same  manner. 
At  the  end  of  the  month,  these  slips  may  be 


.:      I 


MEASURING  ELECTRIC  LIGHT    73 

tabulated  by  multiplying  the  number  of  lamps 
by  the  size  or  watt,  and  the  product  by  the 
number  of  hours  they  were  in  use.  The  fol- 
lowing example  will  illustrate  the  point: 

The  center  during  the  day  used  52  lights  for 
four  hours,  and  the  size  of  the  lights  were  40 
watts,  and  the  result  is  8320  watts  consumed, 
as  follows: 

52  X  4  X  40  =  8320  watts 

These  are  figured  every  day  and  totaled  at 
the  end  of  the  month.  Assuming  that  this 
amount  was  an  average  for  26  working  days, 
the  result  would  be: 

8320  X  26  =  216,320  total  watts 

Electricity  is  sold  by  the  kilowatt,  and  1000 
watts  make  a  kilowatt.  There  were  then  216 
kilowatts  consumed,  which  at  10  cents  per 
kilowatt,  would  amount  to  $21.60.  All  the 
centers  can  be  figured  in  a  like  manner.  This, 
however,  is  not  absolutely  correct.  The  only 
correct  way  is  to  install  an  individual  meter 
in  each  center. 

Where  arc  lights  are  used,  the  electric  com- 
pany will  gladly  furnish  the  information  as 
to  the  watt  consumption. 

There  are  many  other  ways  of  figuring 
light,  as  on  the  basis  of  the  number  of  lights 


74 


HOW  TO  FIGURE  COSTS 


I', 


■1      /■ 

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I-.'  I 


I 


l|if 


in  each  center,  sold  hours,  pay  roll  hours,  etc. 

Many  present  day  cost  experts  regard  these 
older  methods  of  light  distribution  as  wrong 
because  they  result  in  penalizing  the  less  im- 
portant production  centers  which  are  usually 
located  in  the  darker  portions  of  work  rooms. 

The  modern  view  is  that  every  department 
is  justly  entitled  to  sufficient  light  for  its 
operations  and  if  it  is  so  located  that  it  does 
not  receive  enough  daylight  for  that  purpose 
it  should  not  be  loaded  with  the  expense  of 
artificial  light  because  of  its  unfortunate 
location.  These  less  important  production 
centers  usually  carry  a  very  high  production 
cost  because  of  the  small  number  of  hours 
they  are  operated.  Such  machines  as  stitchers, 
punches  and  perforators,  for  instance,  stand 
unused  for  days  at  a  time  in  many  plants  but 
the  expense  of  rent,  interest,  insurance,  depre- 
ciation, etc.,  keeps  piling  up  24  hours  a  day 
and  so  increases  the  hour  cost  of  the  center. 

The  most  equitable  way  to  distribute  the 
cost  of  light  is  to  include  the  light  bill  in  the 
general  expense  to  be  distributed  against  all 
the  productive  centers.  In  this  way  the  un- 
important centers  are  relieved  of  the  excess 
burden  of  light  expense  while  the  more  active 
centers,  owing  to  the  greater  number  of  their 


LIGHT  AND  TOILET  EXPENSE    75 

productive  hours,  will  not  be  unduly  burdened 
and  in  fact  the  increment  of  light  expense 
charged  against  them  becomes  so  small  that 
it  does  not  materially  increase  their  hour  cost. 
Toilet — In  large  plants  this  is  quite  an 
item  of  expense  and  the  only  proper  method 
is  to  distribute  the  cost  to  each  productive 
center  according  to  the  average  number  of 
persons  in  each  center.  The  rent,  water  rate, 
supplies,  soap,  etc.,  should  all  be  figured,  and 
the  total  per  person  in  the  plant  found,  includ- 
ing the  office  force,  and  each  center  be  charged 
with  the  proportion.  The  following  illustra- 
tion shows  the  method: 

Rent $18.00 

Water  rate 4 .  60 

Soap  and  towels 8 .  50 

Supplies 2 .  50 

Repairs 14. 50 

Plumbing  expense   3 .  50 

Total $51.60 

The  number  of  persons   employed   in   the 
plant  are  as  follows : 

Office  force  26 

Composing  room   164 

Press  room 214 

Bindery   241 

Total 77645 


ill 


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II 


;.   ! 


I  !•. 


76 


HOW  TO  FIGURE  COSTS 


The  total  expense  being  $51.60  and  645  per- 
sons, the  cost  per  person  is  8  cents  as  follows: 

$51.60  —  645  =-  .08 

The  cost  is  then  distributed  to  the  centers 
and  office  as  follows: 

No,  of 

persons      Cost        Totals 

Office 26  X    .08  =  $  2.08 

Composing  room   164  X    .08  =     13. 12 

Press  room 214  X    .08  =     17. 12 

Bindery    241   X    .08=     19.28 

$5iT60 

In  small  plants  the  item  of  toilet  expense 
can  be  considered  a  direct  office  cost,  and  this 
will  later  be  absorbed  by  the  various  centers. 

Elevator — In  the  greater  number  of  plants 
elevator  service  is  part  of  the  rent,  and  does 
not  need  consideration.  In  large  plants  it  is 
quite  an  item,  and  must  needs  be  considered 
individually. 

The  freight  elevator  is  used  almost  entirely 
for  handling  stock,  and  the  entire  cost  of  run- 
ning this  elevator  should  be  charged  to  stock 
handling. 

There  may  be  some  argument  here  as  to 
where  the  item  of  delivery  to  shipping  room 


EXPENSE  OF  ELEVATORS 


77 


comes  in;  but  all  this  can  come  under  the 
cost  of  stock  handling,  and  should  be  so  fig- 
ured. The  cost  of  stock  handling  will  be 
considered  later. 

The  cost  of  the  passenger  elevator  and  its 
method  of  distribution  depends  entirely  upon 
the  conditions  of  the  building.  If  the  office  is 
on  the  ground  floor,  then  the  cost  should  be 
distributed  to  the  centers  according  to  the 
full  number  of  employees.  If  the  offices  are 
located  on  the  second  or  third  floors,  then  they 
should  bear  the  greater  portion  of  the  expense, 
as  it  will  be  used  a  greater  percentage  of  the 
time  for  business  purposes.  The  cost  of  the 
elevator  service  must  be  governed  by  circum- 
stances, and  carefully  analyzed  before  a  deci- 
sion is  made  as  to  the  correct  method. 

There  are  a  great  many  plants  that  have 
several  branches  or  departments,  such  as  pub- 
lications, directory  departments,  salesrooms, 
etc.  A  careful  tab  should  be  kept  in  each  of 
these  of  the  elevator  service,  and  each  charged 
with  a  just  proportion  of  the  cost  of  main- 
taining and  running  the  elevators. 

The  usual  items  of  cost  are — power,  repairs, 
inspection,  elevator  operator,  greases  and  oils, 
and  a  liberal  allowance  for  depreciation  and 


o 


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HOW  TO  FIGURE  COSTS 


interest  on  investment,  as  well  as  its  propor- 
tion of  rent  according  to  the  floor  space. 

Those  having  special  elevator  problems 
should  submit  them  to  a  cost  expert  for  con- 
sideration and  advice. 


i. 


2. 


3- 

4- 

5- 
6. 

7- 
8. 

p. 

10. 

II. 


QUESTIONS 

What  plants  are  most  affected  by  the  cost  of  light, 
toilet  and  elevator  expense? 

What  is  the  minimum  cost  for  light  that  should  not 
be  considered  as  an  individual  item  under  the  old 
method  of  distribution? 

State  hozv  light  consumption  by  productive  centers 
may  be  reported. 

Should  the  consumption  of  light  in  the  office  be  re- 
ported?   By  whom? 

How  is  the  amount  of  light  used  to  be  figured? 

What  is  the  modern  method  of  caring  for  light 
expense? 

How  should  toilet  expense  in  large  plants  be  figured? 

Give  an  example. 

To  what  should  the  cost  of  running  a  freight  eleva- 
tor be  charged? 

What  is  the  difficulty  in  figuring  the  cost  of  the 
passenger  elevator? 

State  how  you  ivould  figure  it. 


VIII 
DIRECT    DEPARTMENT    EXPENSES, 
SPOILAGE  AND   STOCK   HANDLING 

Each  productive  center  has  many  items  of 
expense  that  are  wholly  incidental  to  that 
center.  In  every  case  they  should  be  made  a 
direct  charge  and  become  a  part  of  the  cost  of 
operating  that  center. 

The  true  theory  of  cost  is  charging  to  each 
center  every  item  of  direct  cost  specifically 
and  not  by  guesswork.  In  the  productive 
center  method  every  item  of  cost  can  be  traced 
directly,  and  nothing  left  to  be  added  by  any 
method  of  calculation  by  a  percentage  based 
on  something  else.  It  is  the  direct  method  of 
debiting  and  crediting  each  center  with  what 
it  costs  and  what  it  produces. 

The   items   of  direct   expense   that   can   be 

traced  directly  to  each  center  are  numerous, 

and  the  items  in  each  plant  differ  from  those 

of  other  plants,  but  the  common  items  are 

enumerated,    and    the    cost   clerk    should    be 

careful  to  secure  all  the  items  of  expense  that 

can  be  charged  directly  to  the  centers. 

79 


11 


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HOW  TO  FIGURE  COSTS 


There  are  a  number  of  items  of  shop  ex- 
pense, such  as  rags,  lubricating  oil,  gasoline, 
etc.,  which  are  used  in  two  or  more  productive 
centers  and  are  usually  bought  in  bulk.  The 
cost  of  these  items  should  be  charged,  as 
direct  department  expense,  against  each  pro- 
ductive center  using  them  in  direct  propor- 
tion to  the  amount  used.  Mr.  Robert  F.  Den- 
ham,  a  pioneer  in  cost  finding  for  printing 
offices,  puts  it  in  this  way:  "Every  expense 
in  the  printing  business  is  incurred  for  some 
specific  purpose  and  is  of  benefit  to  some 
especial  process  of  production.  All  expense 
must  be  distributed  and  charged  against  the 
departments  of  the  business  directly  in  pro- 
portion to  the  benefits  received  by  each." 

Composition— The  small  expense  items  in 
this  center  are  proof  paper,  twine,  benzine  or 
gasoline,  ink,  brayers,  brushes,  rags,  lye,  etc. 
When  machines  are  used,  there  will  be  gas, 
supplies,  oils,  metal  waste  (about  one  per  cent 
each  time  it  is  melted),  paper  and  water  (if 
monotypes)  and  repairs. 

Press  Room  — In  this  center  there  are  rol- 
lers, benzine  or  gasoline,  gauge  pins,  tympan 
paper,  smut  sheets,  oil,  rags,  repairs  and  other 
supplies.      Ink    is    purely    merchandise    and 


COST  OF  SPOILED  WORK 


81 


should  never  be  considered  as  a  productive 
center  expense,  but  always  as  a  direct  cost 
against  the  job,  the  same  as  paper  stock. 

Bindery — Here  there  are  knife  grinding, 
cutting  sticks,  gas,  wire  for  stitcher,  glue, 
paste,  thread,  folders,  ink,  alcohol,  cleaning 
blankets  for  ruling  machines,  repairs  and  sup- 
plies. Gold  should  be  a  direct  charge  to  the 
productive  center  that  handles  the  finishing 
of  books,  etc. 

No  one  thing  is  of  more  importance  than 
getting  all  these  small  items  into  the  cost  of 
the  productive  center.  The  bookkeeper  should 
give  the  cost  clerk  a  full  list  and  accounting 
of  all  these  small  items,  so  that  they  may  be 
charged  correctly  and  the  cost  clerk  should 
consult  with  the  different  foremen  as  to  the 
amounts  used  of  such  items  as  are  used  in 
two  or  more  centers,  such  as  oil,  etc.,  unless 
some  system  of  requisitions  for  these  supplies 
is  used.  Especially  is  this  true  of  repairs, 
which  may  be  quite  an  item. 

Spoiled  work  is  an  incident  to  all  printing 
plants,  big  or  little.  Too  many,  however,  con- 
sider only  the  cost  of  the  stock.  The  cost  of 
production  up  to  the  point  where  the  error 
occurred  should  be  considered  a  part  of  the 


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HOW  TO  FIGURE  COSTS 


HOW  TO  COVER  SPOILAGE 


83 


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charge.  A  spoiled  work  ticket  should  be 
made  to  cover  the  job,  entered  upon  the  books 
of  the  company,  and  figured  into  the  costs.  A 
great  many  thousands  of  dollars  have  been 
lost  to  the  printers  of  the  country  through 
failure  to  consider  this  important  item.  Print- 
ers who  think  they  do  not  have  it  should 
wake  up. 

In  some  cost  systems  spoiled  work  is  con- 
sidered a  direct  expense  and  charged  to  the 
center  making  the  error,  so  that  the  cost  may 
be  borne  directly  as  an  item  of  cost  to  that 
center.  This  theory  is  fairly  good,  and  one 
that  may  be  carried  out,  but  it  is  not  always 
easy  to  locate  the  origin  of  the  error.  Every 
man  will  prove  an  "alibi"  if  possible,  and  "pass 
the  buck"  to  some  one  else.  A  great  many 
errors  are  due  to  wrong  instructions  from 
the  office,  and  as  all  the  centers  combined 
must  finally  bear  the  cost  of  the  entire  busi- 
ness, unless  the  spoiled  work  can  readily  be 
traced  to  a  particular  center,  the  cost  of  it 
should  be  entered  as  an  office  expense.  In 
nine  cases  out  of  ten,  spoiled  work  will  have 
to  be  taken  care  of  in  this  manner,  and  in 
the  smaller  plants  this  is  the  most  practical 
way. 


Modern  cost  experts  take  the  view  that,  so 
long  as  human  hands  and  brains  are  employed 
in  business  processes,  errors  will  be  made  in 
all  departments  of  either  commercial  or  manu- 
facturing businesses.  This  being  true  it  fol- 
lows that  the  expenses  incurred  through  such 
errors  are  inseparable  from  the  conduct  of 
the  business  and  should,  therefore,  be  treated 
as  an  expense  of  the  business  as  a  whole,  and, 
thus  treated,  spoiled  work  would  become  a 
part  of  the  general  expense  and  be  distributed 
against  all  the  productive  centers  in  proper 
proportion. 

Inasmuch  as  a  large  portion  of  the  spoiled 
work  in  a  printing  office  must  be  made  a  part 
of  the  general  expense  because  of  the  impos- 
sibility of  locating  the  center  responsible  for 
the  spoilage  it  is  much  more  logical  for  all 
to  take  the  same  course. 

An  excellent  way  to  provide  for  this  is  to 
figure  into  the  costs  a  fixed  sum  each  month 
to  take  care  of  this — say  one-half  of  one  per 
cent  of  the  total  business,  or  a  special  ledger  ac- 
count may  be  carried  to  cover  this,  and  all 
spoiled  work  be  debited  to  this  account.  This 
is  a  safe  method,  and  will  prove  successful  in 
keeping  an  accurate  account  of  this  item  of 
cost  and  leakage. 


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HOW  TO  FIGURE  COSTS 


Another  excellent  idea  is  to  provide  a 
special  ruled  columnar  book  in  which  the 
bookkeeper  may  classify  all  direc  t  expenses, 
so  that  the  cost  clerk  may  have  them  at  hand 
v^hen  the  time  comes  to  figure  the  costs  for 
the  month. 

STOCK  STORAGE  AND  HANDLING 

Until  the  productive  center  method  of  figur- 
ing costs  v^as  devised,  the  cost  of  handling 
stock  or  stock  storage  was  never  considered. 

The  general  method  in  use  is  to  charge  ten 
per  cent  for  handling,  but  this,  like  all  percent- 
age methods,  does  not  give  true  costs.  It  cer- 
tainly costs  about  as  much  to  handle  1000  lb. 
of  ten  cent  paper  as  it  does  to  handle  1000  lb. 
of  fifty  cent  paper. 

Waste,  spoilage,  chances  of  loss,  etc.,  cannot 
be  argued  about  as  these  are  all  provided  for 
in  other  ways,  and  not  in  the  cost  of  handling. 

One  of  the  leading  cost  systems  provides 
that  all  the  rent,  labor  and  expenses  of  hand- 
ling and  storage  of  stock  should  be  totaled  and 
pro-rated,  as  a  percentage,  against  materials 
used  on  the  product. 

In  the  smaller  shops  the  handling  of  stock 
is  usually  carried  into  the  bindery;  or  it  simpli- 
fies matters  to  so  arrange  it. 


COST  OF  HANDLING  STOCK       85 

In  larger  plants,  however,  considerable 
space  and  labor  are  expended  in  the  handling, 
storage  and  delivery  of  stock. 

If  it  is  desired  to  know  just  how  much  it 
costs  to  handle  stock,  make  this  work  into  a 
sub-productive  center.  Charge  it  with  such 
items  as  rent,  insurance,  taxes,  labor,  office 
and  incidental  expenses,  etc.,  as  may  be 
proper.  When  this  result  is  obtained,  the 
costs  can  be  ascertained  in  one  of  two 
methods. 

As  it  has  been  suggested  to  add  ten  per  cent 
to  paper  for  handling,  it  may  be  well  to  prove 
the  correctness  of  the  theory.  Having  deter- 
mined the  total  cost,  it  is  merely  necessary  to 
ascertain  from  the  bookkeeper  the  amount  of 
the  purchases  in  paper  for  the  month;  and 
the  rest  is  easy. 

For  example,  it  has  cost  $375.46  per  month 
for  rent,  insurance,  taxes,  depreciation,  etc., 
to  run  a  sub-productive  center  for  stock  hand- 
ling, and  there  has  been  expended  $3,254.65  on 
paper.  The  cost  of  handling  the  stock  amounts 
to  11 J  per  cent  as  follows: 

$375.46  -^  $3254.65  =  .115  or  11 J  per  cent 
This  method  is,  however,  manifestly  unfair 


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HOW  TO  FIGURE  COSTS 


to  the  customer  using  the  higher  priced  papers 
and  equally  unfair  to  the  printer  on  the  lower 
priced  papers.  For  example,  two  jobs  going 
through  the  shop  at  the  same  time  and  each 
using  10  pounds  of  paper,  one  at  15  cents  and 
the  other  at  30  cents  a  pound;  against  one 
job,  on  the  ten  per  cent  method,  would  be 
charged  15  cents  for  stock  handling  and  stor- 
age and  against  the  other  30  cents.  This  is 
inequitable  as  the  stock  room  cost  would  be 
the  same  for  each  10  pounds  of  stock. 

The  logical  method  would  be  to  find  the 
pound  cost  of  handling  and  storing  all  paper 
stock.  A  pound  is  a  pound  and  its  money 
value  has  no  definite  relation  to  the  cost  of 
handling  and  storage.  This  method  requires 
a  little  more  labor,  but  it  is  far  more  accurate. 

Ascertain  the  total  number  of  pounds  of 
paper  purchased  during  the  month;  the  weight 
of  the  envelopes  may  also  be  included. 

For  example — It  has  cost  $375.46  to  con- 
duct the  stockhandling  center,  and  it  is  found 
by  careful  calculation  that  75,092  pounds  of 
paper  were  purchased  during  the  month,  and 
that  it  has  cost  .005  per  pound  to  handle  it : 

$375.46  -V-  75092  =  .005 


DEPARTMENTAL  EXPENSES       87 

If  1000  lb.  of  paper  are  used,  it  would  cost, 
upon  that  basis,  $5.00  to  handle  it,  whether  ten- 
cent,  fifteen-cent  or  forty-cent  paper.  This  is 
the  most  accurate  way,  but  requires  a  little 
more  labor  because  it  is  necessary  to  ascertain 
the  number  of  pounds  of  paper  purchased  dur- 
ing the  month.  This,  with  the  exception  of  a 
few  items,  can  be  gathered  from  the  invoices. 

QUESTIONS 

1.  Are  there  items  of  expense  that  can  be  charged 

directly  to  a  productive  center  f 

2.  Is  the  theory  of  finding  the  cost  by  direct  charges 

correct? 
J.     Does    this    method    apply    to    productive    center 
methods? 

4.  Give  a  list  of  direct  expenses  in  various  centers, 

5.  Give  a  list  of  those  not  included  in  this  article. 

6.  Who  should  furnish  a  list  of  direct  expenses? 
y.    Do  you  have  any  spoiled  work? 

8.  Can  the  center  at  fault  be  readily  found? 

p.  How  should  spoiled  work  be  charged? 

10.  Does  it  cost  money  to  handle  stock? 

11.  Which  is  the  more  accurate  method — to  charge  a 

percentage  or  a  direct  price  per  pound? 


! 


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IX 

SALARIES  OF  FOREMEN  AND 
SUPERINTENDENTS 

The  theory  of  a  foreman  is  that  he  should 
oversee  and  direct  the  efforts  of  a  number  of 
men  who  are  employed  at  a  given  task.  He 
is  not  supposed  to  do  any  of  the  actual  work, 
but  to  superintend  it. 

Many  small  plants,  however,  have  *'work- 
ing  foremen,"  who  not  only  direct  the  work 
of  others,  but  do  a  good  share  of  it  themselves. 

In  the  matter  of  figuring  the  foreman's 
salary,  or  rather  of  distributing  his  salary 
against  each  productive  center,  there  are  two 
separate  ideas — one,  that  of  a  "directing  fore- 
man" and  the  other  a  "working  foreman,"  and 
each  needs  different  treatment  in  the  adjust- 
ment of  salary. 

The  "directing  foreman,"  as  explained  in 
the  first  paragraph,  directs  the  efforts  of  a 
number  of  men  at  a  given  task.     The  men 

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HOW  TO  FIGURE  COSTS 


under  him,  who  receive  the  higher  rate  of 
wages,  do  so  because  the  foreman  finds  that 
he  need  not  pay  as  much  attention  to  the  work 
of  these  men  as  he  does  to  that  of  the  others; 
and  the  lowest  paid  man  is  the  one  who  re- 
quires the  most  supervision. 

In  many  shops  the  foreman  directs  the  work 
in  more  than  one  productive  center;  for 
instance — in  the  press  room  with  job  and  cyl- 
inder presses,  or  a  bindery  that  has  been 
subdivided  into  several  productive  centers. 
The  foreman  is  a  non-producer,  but  plays  the 
highly  important  part  of  "director' --and  his 
salary  must  be  borne  by  the  various  productive 
centers  of  which  he  has  charge. 

His  work  is  clearly  with  the  individual,  irre- 
spective of  the  wage  paid,  and  therefore  the 
salary  of  the  foreman  cannot  be  distributed  to 
the  various  productive  centers  according  to 
the  wages  paid  the  various  employees.  This 
v^ould  be  unjust  to  the  man  who  is  paid  a 
high  wage  because  he  requires  but  little 
supervision,  and  would  be  clearly  favoring  the 
cheap  employee  who  requires  considerable 
supervision. 

The  productive  center  that  employs  the 
greatest  number  of  peeople  will  need  the  most 


DISTRIBUTION  OF  SALARIES      91 

directing,  and  the  one  with  few  people  will 
require  less. 

Reasoning  the  situation  out  clearly,  the 
salary  of  the  foreman  should  be  distributed 
according  to  the  number  of  hours  employees 
have  worked  in  the  various  productive  centers. 
Not  chargeable  hours,  but  actual  pay-roll 
hours  of  the  employees.  To  use  the  chargeable 
hours  would  not  be  just  as  the  non-chargeable 
time  often  needs  as  much  directing  as  the 
chargeable. 

Referring  back  to  figuring  the  pay  roll  (see 
page  4)  you  will  note  that  the  actual  pay-roll 
time  of  every  employee  has  been  totaled  for 
each  productive  center.  Thus  the  number  of 
hours  put  in  by  employees  in  each  of  the 
productive  centers  can  be  easily  totaled,  as 
follows : 


Comp. 
John  Richards   ..224.0 

Chas.  Edmunds 

R.  R.  Hicks 214.5 


Cyl.  P.      Jobbers      Bind'y 


54.2 


112.8 


57.5 


Total  for  depts. . .  438 . 5  54 . 2  112.8  57 . 5 

Thus  we  find  that  there  are  663   pay-roll 
hours  as  follows: 


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92  HOW  TO  FIGURE  COSTS 

Composition    433  5 

Cylinder  press 54.2 

Job  press    112.8 

Bindery 57.5 

Total 663     hours 

The  foreman's  salary  is  $232.00  and  this 
divided  by  663  hours  will  amount  to  35  cents 
an  hour  which  is  then  divided  on  that  basis 
among  the  productive  centers  as  follows: 

Hours        Rate 

Composition  438.5  X   .35  =  $153.48 

Cylinder  press    54.2  X    .35  =       18.97 

Jobpress    112.8  X    .35=      3^.48 

Bi^^ery 57.5  X   .35  =      20.12 

Total  $232.05 

The  odd  5  cents  should  be  deducted  from 
the  least  active  department,  making  cylinder 
press  $18.92. 

Each  center  by  this  method  has  charged  to 
it  a  just  proportion  of  the  foreman's  salary, 
according  to  the  amount  of  directing  the 
center  requires.  A  center  that  is  comparatively 
idle  needs  very  little  directing,  and  the  busy 
center  needs  more.  Each  center  will  be 
charged  only  as  it  needs  demand. 

The  salary  of  the  working  foreman  is  taken 


IMPORTANCE  OF  ACCURACY      93 

much  in  the  same  way,  except  he  will  keep  a 
time  report  and  all  non-chargeable  time  will 
be  credited  to  directing,  and  this  amount  dis- 
tributed among  the  various  productive  centers 
in  his  charge  in  the  same  manner  as  already 
shown.  His  productive  hours  to  be  credited  to 
the  center  where  produced  and  the  proper 
proportion  of  his  wage  charged,  as  labor, 
against  these  centers. 

There  may  be  some  question,  however,  as  to 
the  time  of  a  working  foreman  in  the  compos- 
ing room  when  he  does  distributing.  The  cost 
clerk  will  have  to  look  out  for  this  very  care- 
fully, and  separate  the  directing  time  from  the 
time  actually  spent  in  a  productive  center.  A 
great  deal  of  diplomacy  and  tact  must  be  used 
when  the  working  foreman  is  a  member  of 
the  firm.  By  carefully  making  out  time  re- 
ports, and  calling  the  attention  of  the  foreman 
to  the  need  of  correct  time,  the  desired  result 
may  be  accomplished.  But  it  will  require 
persistent  effort  to  do  it.  It  is  a  sad  com- 
mentary upon  business  men  that  they  are 
particular  about  the  accounting  of  every  dol- 
lar, but  lose  track  of  the  golden  hours  that 
bring  in  the  dollars,  and  see  but  little  need 
of  accounting  for  them. 


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94  HOW  TO  FIGURE  COSTS 

Where  a  superintendent  is  employed  to  take 
the  management  of  a  plant,  and  is  in  charge 
of  several  foremen,  his  salary  should  be 
charged  equally  against  the  various  foremen, 
each  foreman  to  be  considered  as  a  unit.  The 
superintendent  or  manager  handles  the  busi- 
ness through  the  foremen,  and  his  salary 
should  be  disposed  of  through  them  and  dis- 
tributed to  the  centers  in  the  same  way  as 
the  foremen's  wage. 

This  is,  no  doubt,  a  new  idea  on  the  subject, 
but  when  analyzed  it  may  be  seen  clearly  that 
it  is  a  very  logical  way  to  distribute  the 
superintendent's  salary.  As  the  foreman 
directs  those  under  him,  so  does  the  super- 
intendent direct  the  foremen.  For  convenience 
in  figuring,  the  amounts  may  be  added  to  the 
foremen's  wage  before  charging  to  centers. 

Should  there  be  five  foremen  in  a  plant,  and 
the  superintendent's  salary  $350.00  a  month, 
one-fifth  is  added  to  the  wage  of  every  fore- 
man as  follows: 

Foreman                        Salary    Supt.  Salary  Total 

John  Osborn $226. 50     +     $70    =»  $296. 50 

Richard  Johns 234.75     +       70    =-  304.75 

Geo.  C.  Robinson 215.00     +       70    =-  285.00 

Oscar  Nelson 232.50    +      70    ^  302.50 

Henry  Vance   254.65     +      70    =«  324.65 


Jl 


QUESTIONS  ON  SALARIES         95 

These  totals  are  then  carried  to  the  various 
productive  centers  of  which  the  foremen  have 
charge  on  the  basis  of  the  pay-roll  hours, 
exactly  as  described  before. 

Another  method  quite  commonly  in  use  is 
to  carry  the  superintendent's  salary  as  a  part 
of  the  administrative  or  office  expense. 

QUESTIONS 


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2. 
J- 


6. 

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8. 
p. 

10. 

II. 

12. 


What  is  a  foreman  f 

How  many  kinds  are  there  f 

Should  the  higher  paid  employee  bear  a  larger  por- 
tion of  the  foreman's  salary  for  directing? 

Can  a  foreman  direct  in  more  than  one  productive 
center? 

What  productive  center  should  he  charged  with  most 
of  the  foreman's  salary? 

What  is  a  pay-roll  hour? 

Hozv  can  this  be  used  to  distribute  the  foreman's 
salary? 

How  is  the  "working"  foreman's  salary  distributed? 

What  is  the  main  difficulty  in  the  time  of  a  ''work- 
ing" foreman? 

How  should  a  superintendent's  salary  be  distributed? 

Why? 

What  other  method  can  he  used? 


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SELLING  EXPENSE 

If  one  were  to  ask  the  average  printer  what 
his  selling  expenses  were,  he  would  stare  in 
wonderment  and  probably  say  that  he  did  not 
have  any  except  his  solicitor. 

Yet  every  printer,  however  small,  has  some 
selling  expense,  and  the  list  of  the  items  that 
make  up  this  expense  is  considerably  more 
than  the  amount  paid  to  a  solicitor. 

The  following  items  are  a  few  of  those  that 
go  to  make  up  the  selling  expense: 

Salaries  of  salesmen  and  solicitors 

Commissions  for  orders 

Traveling  expenses 

Car  fares 

Advertising 

Telephone  and  tolls 

Telegrams 

Discounts  to  customers 

Deductions  to  customers 

Bad  accounts 

97 


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III 


98 


HOW  TO  FIGURE  COSTS 


Donations  and  charity 

Organization  dues 

Office  stationery 

Postage 

Being  a  good  fellow 

Perhaps  there  are  more.  All  these  are 
closely  related  to  sales,  and  must  be  considered 
a  selling  expense.  Each  will,  upon  careful 
analysis,  be  found  a  true  selling  expense. 

Salaries  of  Salesmen  and  Solicitors — There  is 
no  question  but  that  these  are  selling  ex- 
penses, especially  if  they  are  working  on  a 
straight  salary  and  not  upon  a  percentage 
basis. 

Commissions  for  Orders — This  item  should 
be  figured  into  selling  costs  as  a  lump  sum, 
especially  with  the  idea  of  one  order  being 
a  leader  to  many.  If  commissions  are  given 
occasionally,  this  is  correct.  If,  however,  all 
the  salesmen,  solicitors,  etc.,  are  absolutely 
on  a  commission  basis,  then  these  two  items 
must  not  be  figured  into  costs,  but  the  com- 
mission added  as  a  direct  cost  to  each  job  or 
item  from  which  the  salesman  derives  a  mone- 
tary return.  The  only  correct  method  of 
handling  this  proposition  is  to  obtain  a  factory 
cost,    and    then   add    the    commission.      This 


SALESMEN'S  EXPENSES 


99 


should  be  handled  very  carefully,  and  not 
attempted  except  upon  expert  advice,  when  all 
the  circumstances  have  been  fully  taken  into 
account.  The  average  plant,  however,  does  not 
do  business  in  that  way,  and  hence  all  sales- 
men's costs  should  enter  directly  into  all  the 
productive  costs. 

Traveling  Expenses — These  are  almost  al- 
ways related  to  sales,  and  are  a  selling  expense. 
Car  Fare — This  is  mostly  street  car  fare,  and 
large  orders  often  mean  many  trips.  Small 
orders  will  mean  few.  This  is  clearly  a  selling 
expense. 

Advertising — No  one  will  question  this  as  a 
selling  expense,  and  if  the  advertising  is  pro- 
duced and  mailed  from  your  own  plant,  the 
full  cost  of  this  advertising  must  be  charged. 
Do  not  make  the  mistake  of  thinking  that 
your  own  printing  costs  nothing.  Charge 
into  selling  expense  the  full  cost  just  as  if  it 
were  produced  for  someone  else.  No  greater 
loss  has  there  been  than  this  one,  especially 
to  printers.  The  merchant  and  manufacturer 
has  to  pay  for  his  advertising  matter,  which 
enters  into  his  cost  of  doing  business  and 
because  it  is  done  for  your  business  does  not 
eliminate  the  value  of  it;  so  why  not  figure  it 
into  the  cost  of  doing  business  ? 


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100 


HOW  TO  FIGURE  COSTS 


Discounts  to  Customers — Many  give  dis- 
counts, and  take  discounts,  and  foolishly  try 
to  balance  one  with  the  other.  A  discount 
may  be  given,  not  only  for  prompt  payment, 
but  to  v^in  trade,  to  sell  the  goods.  Every 
discount  given  is  a  selling  expense,  and  should 
be  figured  into  the  costs. 

Deductions — The  same  argument  in  relation 
to  discounts  holds  good  with  deductions  to 
customers.  They  are  given  to  hold  business, 
or  as  a  means  of  securing  a  future  order.  Thus 
they  become  a  selling  expense. 

Bad  Accounts — Uncollectible  accounts  should 
be  held  down  to  a  certain  percentage  of  sales. 
They  are  an  incident  of  selling. 

Donations  and  Charity— oiten  called  '*hold- 
ups" — are  usually  given  because  of  some  pull, 
that  may  result  in  either  getting  business,  or 
loss  of  business  when  turned  down.  They  are 
a  selling  expense,  and  are  usually  held  down 
to  a  certain  percentage  of  sales. 

Organisation  Dues — These  are  usually  for 
membership  in  trade  organizations  for  better- 
ment of  business  methods  and  larger  profits, 
and  hence  have  a  distinct  relation  to  sales. 

Office  Stationery  and  Postage — A  necessity, 
but  almost  entirely  used  to  produce  sales,  or 


HANDLING  SELLING  EXPENSES  101 

the  necessary  correspondence  before,   during 
or  after  the  production  of  work. 

Telephone,  Tolls,  Telegrams,  etc, — These 
modern  necessities  are  used  almost  exclusively 
in  the  promotion  of  sales,  and  are  clearly  a 
selling  expense.  How  often  are  they  used 
for  anything  beside  the  actual  business  con- 
nected with  either  a  possible  order,  or  an 
order  in  the  house?  They  facilitate  selling, 
and  are,  therefore,  a  selling  expense. 

Being  a  Good  Fellow — Last  but  not  least  are 
the  hundred  and  one  small  costs  of  getting  on 
the  right  side  of  a  customer,  treating  him 
right  and  holding  his  business.  And  the  cus- 
tomer must  pay — who  else  should? 

These  are  the  general  selling  items,  and 
must  be  figured  into  the  cost  of  production. 

There  are  two  ways  in  which  they  can  be 
figured  into  costs,  a  great  deal  depending  upon 
the  size  of  the  plant  and  method  of  doing 
business. 

For  a  small  plant  these  items  may  be  safely 
figured  into  the  "office"  expense,  and  then 
distributed  to  the  various  centers,  as  will  be 
described  later.  This  method  is  advised  for 
the  medium  and  small  plants,  as  the  method 
to  be  described  later  will  make  but  very  little 


4 


J !  H 


102 


HOW  TO  FIGURE  COSTS 


if  any  difference  in  the  hour  costs  in  their 
plants. 

The  plant  doing  a  business  of  $20,000  a  year 
or  more,  however,  has  a  very  much  larger 
selling  expense,  enters  into  more  productive 
centers,  and  it  would  be  unfair  to  charge  the 
selling  expense  as  a  direct  office  cost. 

Selling  expense  is  based  on  total  sales,  and 
therefore  each  center  should  bear  as  a  selling 
expense  its  just  burden  according  to  the  sales 
of  each  center. 

The  easiest  and  most  correct  method  is  to 
figure  the  basis  of  the  cost  of  sales  without 
profit  or  loss  (which  are  always  a  percentage 
of  cost)  and  then  distribute  the  selling  ex- 
pense on  that  result. 

For  example,  assume  that  the  selling  ex- 
pense of  a  plant  is  $104.82,  and  is  to  be  dis- 
tributed to  the  composing  room,  cylinder  and 
job  presses  and  bindery.  If  there  were  more 
centers,  the  principle  would  still  be  the  sarne. 

The  composing  room  produced  265  charge- 
able hours,  the  cylinder  press  51,  the  job  press 
106,  and  the  bindery  56.  The  basis  upon 
which  the  production  of  this  plant  sold  its 
product  was  $2.40  an  hour  for  composition, 
$3.00  an  hour  for  cylinder  press,  $1.60  an  hour 


SALES  EXPENSE  DISTRIBUTION  103 

for  jobbers,  and  $1.60  an  hour  for  binding. 
Either  profit  or  loss  on  work  was  a  percentage 
of  the  total  cost  as  based  on  these  rates. 

In  other  words,  they  were  the  extension 
values  that  are  used  in  figuring  the  cost  of 
work  and  as  a  basis  of  selling.  Therefore  the 
selling  expense  may  be  safely  distributed  to 
the  various  productive  centers  on  a  basis  of 
this  cost,  which  is  the  chargeable  hours  multi- 
plied by  the  extension  rates.  The  result  is 
as  follows: 

Chargeable    Extension 
Department  Hrs.  Rate  Values 

Composing  room   265  X  $2 .  40  =  $636 .  00 

Cylinder  press 51  X  3.00  =  153.00 

Job  press   106  X  1.60  =  169.60 

Binding   56  X  1.60  =  89.60 

$1048.20 

The  total  selling  expense  is  $104.82,  and  the 
sales  are  $1,048.20,  which  is  ten  per  cent  as 
follows: 

$104.82  -^    $1048.20  =  10  per  cent 

The  various  centers  will  therefore  carry  ten 
per  cent  of  the  selling  expense,  based  on  the 
extended  values  of  their  chargeable  hours  as 
follows : 


1 1 


104         HOW  TO  FIGURE  COSTS 


Extended 
Department  Values 

Composing  Room $636.00 

Cylinder  press 153 .  00 

Job  press    169.60 

Bindery    89.60 


Per  cent 
of  Sales 

X  10%  == 

X  10%  = 

X  10%  = 

X  10%  = 


Totals 

$  63.60 

15.30 

16.96 

8.96 


$104.82 

This  method  simply,  accurately  and  positive- 
ly charges  to  each  center  a  due  proportion  of 
the  selling  expense,  based  on  the  total  sales 
for  the  month  of  each  productive  center.  They 
are  made  a  direct  charge,  and  only  according 
to  the  sales.  A  center  that  produces  very 
little  should  be  charged  with  little  selling 
expense,  while  the  center  that  produces  the 
most  should  bear  the  greater  burden. 

QUESTIONS 
Has  a  printer  any  selling  expense? 
What  is  selling  expense? 
Describe  the  items  and  tell  why  they  are  a  selling 

expense. 
How  should  commissions  he  handled? 
What  two  ways  are  advisable  in  which  to  distribute 

cost  of  selling? 
Upon  what  is  cost  of  selling  usually  based? 
How  can  this  be  applied  to  printing? 
What  is  an  extension  rate? 
Show  hozv  selling  expense  can  be  distributed  on 

extension  values. 


I. 

2. 

3- 

4- 
5- 

6. 

7- 

8. 

9- 


XI 


ADMINISTRATION    EXPENSES   AND 
COMMERCIAL  INVESTMENT 

One,  in  figuring  costs,  almost  reaches  the 
belief  that  "Things  that  are  not — is."  So  many 
elements  enter  into  the  figuring,  and  can  be 
traced  to  cost,  that  never  were  put  into  the 
"general  expense''  account,  and  each  is  so  vital 
to  commercial  success  that  no  wonder  "labor 
costs"  only  were  thought  of  in  the  early  days 
of  cost  finding.  Usually  a  lump  sum  of  25  per 
cent  or  SSys  per  cent  was  supposed  to  cover 
the  "expense  of  doing  business,"  and  then  let 
it  go  at  that.  But  many  a  concern  went  broke 
on  that  principle,  and  the  cost  student  dived 
deeper  for  the  reason. 

Having  figured  rent,  interest  and  replace- 
ment, insurance  and  taxes,  power,  light,  direct 
expenses,  wages,  and  selling  expenses,  one 
would  think  that  should  complete  the  list,  but 
there  are  other  items  of  cost  that  are  at  times 
ignored,  yet  must  be  worked  out  if  the  busi- 
ness is  to  be  a  commercial  success. 

105 


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106 


HOW  TO  FIGURE  COSTS 


One  of  these  items  is  executive  salaries,  or 
to  call  it  by  a  less  high-sounding  name,  the 
boss's  salary.  Few  proprietors  think  oi  their 
own  salaries,  yet  they  are  a  part  of  the  cost 
of  conducting  the  plant,  and  the  proprietor 
is  entitled  to  a  salary  for  his  efforts,  and  a 
profit  besides.  He  must  secure  a  living,  and 
to  assure  it  he  must  figure  it  into  his  costs 
just  the  same  as  wages  or  salary  paid  to  other 
employees.  The  owner  usually  works  for  the 
business,  as  such,  and  so  stands,  in  relation  to 
it,  as  an  employee. 

This  is  but  one  of  the  administrative  ex- 
penses of  a  business.  The  others  are  book- 
keepers, cost  clerks,  stenographers,  office, 
messenger  and  delivery  boys,  office  supplies, 
books  of  account,  etc.  These  in  a  large  plant 
amount  to  quite  a  sum,  and  should  be  figured 
as  a  direct  office  expense,  and  distributed  to 
the  various  centers,  as  will  be  explained  in 
the  next  article. 

Not  all  of  the  money  necessary  to  conduct  a 
plant  is  invested  in  machinery  and  office  furni- 
ture or  equipment  alone.  Of  the  total  capital 
invested  in  a  plant,  perhaps  only  three-quarters 
and  often  only  one-half  is  thus  invested. 

Too  often  men   start   in   business   thinking 


'***U 


ff4 


ADMINISTRATION  EXPENSES    107 

they  need  only  a  building,  machinery,  etc.,  and 
are  then  ready  to  start.  This  is  not  a  start  in 
the  business  world  on  a  proper  basis,  and  very 
soon  the  individual  wakes  up  to  the  fact  that 
credit  plays  a  big  part,  and  he  will  need  money 
for  running  expenses,  or  credit  to  carry  him 
along  until  he  can  secure  a  return  in  money 
on  work  done. 

The  well-managed  concern  always  has  a 
working  balance,  and  does  not  hesitate  to 
secure  a  loan,  so  that  the  working  balance 
will  be  at  hand  in  case  it  is  needed.  It  re- 
quires money  to  pay  interest,  and  if  a  printer 
does  not  pay  interest  on  borrowed  money,  he 
would  have  to  use  his  own  money,  and  in  that 
case  is  just  as  much  entitled  to  interest  as  the 
bank  would  have  been  had  it  loaned  him 
money. 

Now  this,  in  the  business  world,  is  called 
"commercial  investment,"  or  ^'working  capi- 
tal,'' and  covers  money  invested  in  the  busi- 
ness other  than  in  equipment.  It  makes  no 
difference  if  the  money  has  to  be  borrowed  to 
take  care  of  this  or  if  the  proprietor  has  that 
much  surplus  invested — it  must  bring  a  re- 
turn. It  is  used  to  make  certain  a  reasonable 
return  on  the  money  invested. 

In  order  to  guarantee  a  sure  and  safe  return 


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III 


108 


HOW  TO  FIGURE  COSTS 


of  this  money,  it  is  necessary  to  figure  it  into 
the  cost  of  the  business.  To  neglect  to  do  so, 
may  mean  commercial  failure.  There  are 
some  who  say  this  should  come  out  of  the 
profits;  but  they  are  taking  a  chance  on  a 
possible  profit,  whereas  there  is  no  chance 
connected  with  costs. 

The  general  items  on  commercial  invest- 
ment are: 

Interest  on  cash  and  bank  balances 
Interest  on  accounts  receivable 
Interest  on  work  in  process 
Interest  on  paper  stock  and  merchandise 
State,  federal  and  corporation  taxes 

The  first  item  may  startle  somewhat,  but 
most  banks  require  a  certain  balance  to  secure 
accommodations,  and  this  is  money  invested 
in  the  business. 

The  accounts  outstanding  represent  money 
expended  in  production,  the  owner  is  not 
being  benefited  by  the  use  of  that  money,  which 
might  be  invested  elsewhere  and  secure  an  in- 
terest return  on  same.  If  customers  wish  to 
be  carried,  they  should  pay  for  the  privilege, 
and  as  it  is  wise  to  make  sure  of  receiving  it! 
the  interest  on  the  monthly  balance  of  accounts 
receivable  should  be  figured  into  the  costs. 


INTEREST  ON  INVESTMENTS  109 

This  means  at  6  per  cent  the  sum  of  one-half 
of  one  per  cent  on  the  balance  of  accounts  re- 
ceivable at  the  end  of  the  month. 

The  work  begun,  but  as  yet  incomplete,  has 
tied  up  a  lot  of  money.  It  is  in  the  nature  of 
accounts .  receivable,  but  does  not  appear  on 
the  ledger.  With  a  cost  system,  it  is  but  the 
work  of  a  few  minutes  to  go  through  the  job 
record  sheets,  add  up  all  the  time  and  material 
charged  to  unfinished  work,  and  figure  one- 
half  of  one  per  cent  of  this  into  the  commercial 
investment  expense. 

Money  invested  in  a  stock  of  paper  or  other 
merchandise  awaiting  a  purchaser  is  entitled 
to  interest  on  the  amount  invested  as  well  as 
investment  for  any  other  purpose.  In  the  large 
cities,  the  average  printer  carries  very  little 
paper  or  merchandise  that  his  unfinished  work 
would  not  cover.  In  the  inland  towns,  how- 
ever, the  situation  is  different,  and  a  consider- 
able stock  of  paper  must  be  carried  to  meet 
the  demands  of  the  trade.  On  this  the  pro- 
prietor must  get  a  return  on  the  money  in- 
vested. A  perpetual  inventory  can  be  easily 
kept,  and  the  average  balance  at  the  end  of 
the  month  will  give  the  proper  amount  on 
which  to  compute  the  interest  as  above. 


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110         HOW  TO  FIGURE  COSTS 

If  you  pay  state,  federal  or  corporation 
taxes,  these  taxes  should  be  included  as  a 
commercial  investment  expense. 

Many  believe  that  if  the  business  owes  any 
money  on  open  account,  this  should  be  de- 
ducted from  the  total,  as  interest  is  not  being 
paid  on  that  money,  and  as  it  is  not  the  firm's 
money,  therefore,  interest  should  not  be  fig- 
ured on  something  not  invested  or  borrowed 
from  a  bank,  and  on  which  the  business  is  pay- 
ing interest. 

With  this  method  commercial  investment 
interest  may  be  figured  as  follows: 

Cash  and  bank  balance $  250.00 

Accounts  receivable 560.00 

Work  in  process  and  merchandise. . . .     275.00 

$1085.00 
Less  accounts  and  bills  payable 595 .  00 

$  490.00 

Interest  at  one-half  of  one  per  cent. ...         2.45 
Federal  and  corporation  tax,  1/12  of 

the  whole  amount .50 

$      2.95 

It   is   recognizable   that    the   fewer    the   ac- 
counts payable,  the  greater  the  amount  to  be 


QUESTIONS  OF  ADMINISTRATION  111 


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figured  for  interest,  as  there  will  be  a  greater 
amount  invested  in  the  business. 

The  amount  should  be  charged  direct  to 
office  expense,  except  in  extremely  large 
plants,  and  then  distributed  on  the  basis  of 
total  departmental  costs  as  explained  later. 

QUESTIONS 

/.  Haz'e  all  the  items  of  cost  been  figured  in  the  gen- 
eral expense  f 

2.  What  are  the  usual  expense  items  F 

J.  What  item  of  expense  is  sometimes  forgotten  f 

4.  What  are  administrative  expenses? 

5.  Is  money  invested  only  in  equipment? 

6.  Why  do  many  men  start  in  business  on  a  false  basis? 

7.  Why  commercial  investment? 

8.  What  items  should  bring  interest  as  a  commercial 

investment? 
p.     Give  your  own  opinion  on  the  subject  of  outstanding 
accounts  and  unfinished  work. 

10.  What  about  accounts  and  bills  payable? 

11.  Give   an   example   of  figuring   commercial  invest- 

ment. 


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112 


XII 


OFFICE  EXPENSES 

We  have  now  come  to  the  finishing  touch 
of  the  Cost  System.  Every  conceivable  item 
of  expense  has  been  provided  for,  and  each 
distributed  and  placed  in  its  proper  position 
and  where  its  presence  can  be  properly  ex- 
plained. 

If  you  will  go  back  to  the  previous  articles, 
and  place  all  the  problems  figured  out — with 
a  very  few  exceptions  that  did  not  quite  fit 
into  the  general  plan  and  were  given  mainly 
as  illustrations — you  will  make  out  a  sheet 
about  like  the  one  on  page  112. 

You  can  easily  trace  each  item,  and  read 
back  what  each  means,  and  after  you  total 
it  all  up,  you  will  come  to  office  expense, 
which  is  largely  administrative  and  selling 
cost,  and  wonder  what  in  the  world  you  are 
to  do  with  that  $264.29.  There  are  several 
ways  in  which  it  is  possible  to  distribute  this 
sum  to  the  various  productive   centers,   and 

113 


Ir ' 


lff| 


I 


\ 


114         HOW  TO  FIGURE  COSTS 

without  prejudice  each  method  will  be  shown 
and  carefully  analyzed  with  examples  show- 
ing methods  of  figuring  and  results. 

Sold  Hour  Method — This  method  is  the 
distribution  of  office  expense  to  the  various 
centers  according  to  the  number  of  sold 
(chargeable)  hours  to  each  productive  center. 

Argument — The  sold  hour  represents  the 
effort  that  has  been  put  forth  to  produce.  The 
center  that  has  not  produced  should  not  be 
charged  with  any  of  the  office  expense.  The 
sold  hour  is  the  unit  of  cost,  and  must  bear 
the  burden.  It  provides  for  elasticity,  in  that 
busy  departments  carry  the  greater  portion 
of  this  expense.  There  is  a  logical  and  direct 
relation  between  the  hours  sold  and  the  sell- 
ing and  administrative  cost  of  selling  them 
and  collecting  and  accounting  for  the  selling 
price. 

Example — There  are  in  all  478  sold  hours 
(or  chargeable  hours)  and  the  office  expense 
is  $264.29,  and  this  divided  by  the  sold  hours 
gives  the  result  of  nearly  55.3  cents  per  hour 
for  office  expense  as  follows: 

$264.29    -J-    478    =    .553— 


DISTRIBUTE  OFFICE  EXPENSE    115 

The  office  expense  is  then  distributed  to  the 
productive  centers  as  follows: 

Center  Sold  Hrs.  Cost 

Composing  room 265     X  .553  =  $146.54 

Cylinder  press  51     X  -553  ==  28.20 

Job  press 106     X  .553  =  58.61 

Bindery 56    X  .553  =  30.96 

$264.31 

This  is  2  cents  in  excess  of  the  correct  sum, 
as  the  cost  is  less  than  55.3  cents.  This 
amount  is  usuallv  deducted  from  the  centers 
doing  the  least  work,  and  then  added  to  the 
cost  of  the  centers  as  follows: 

Comp.        Cyl.      Jobbers    Bind'y 

Center  cost $610.99    $105.96    $160.96    $  97.71 

Dist.  office  expense..  146.53        28.20        58.61        30.95 


Total    $757.52    $134.16    $219.57    $128.66 

Having  thus  distributed  office  expense  to 
the  productive  centers,  and  added  the  direct 
center  cost  and  office  cost,  the  total  depart- 
ment costs  are  found,  and  it  is  only  necessary 
to  divide  these  costs  by  the  sold  hours  to  ob- 
tain the  cost  per  sold  hour  of  the  various  pro- 
ductive centers. 


\) 


i|^ 


116 


il 


\^i 


N 


Center 


HOW  TO  FIGURE  COSTS 


Total  Cost    Sold  Hrs. 


Composing  room   $757.52    -: 

Cylinder  press    134.16 

Job  press  219.57    -r- 

Bindery    128.66 


:-    265  «= 

51  -= 

106  = 

56  - 


Cost  per 
Hour 
$2.86— 
2.63 

2.07+ 
2.30— 


The  real  hour  costs  as  shown  by  this  method 
have  now  been  ascertained.  For  the  small  of- 
fice this  method  is  ideal  and  practical,  and 
many  larger  shops  believe  it  to  be  accurate. 

However  that  may  be — and  the  writer's 
personal  opinion  is  not  considered — there  are 
other  methods  that  the  cost  clerk  should  know, 
and  we  present  them  here.  They  are  fully 
explained,  and  the  reader  may  take  his  clioice. 

Total  Department  Cost — By  this  method 
the  office  expense  is  distributed  on  the  basis 
of  the  total  cost  of  each  productive  center  as 
indicated  by  totals  of  summary  of  cost  table 
exclusive  of  "office"  column  (page  112). 

Argument — The  direct  cost  of  each  of  the 
centers  are  the  factors  of  cost,  and  being  such, 
office  expense  should  be  figured  on  that  basis. 
The  production  cost  of  an  article  for  sale  is 
ascertained,  and  the  ''administrative  overhead" 
cost  added  to  give  the  gross  cost  before  profit 
can  be  added.     The  direct  center  cost  repre- 


TOTAL  COST— OFFICE  COST     117 

sents  factory  cost,  and  office  expense  should 
be  distributed  to  each  center  on  that  basis — 
the  hour  cost  can  then  be  found. 

Example — The  total  cost  of  the  centers  are 
ascertained,  and  then  the  percentage  of  office 
cost  to  the  productive  center  cost  ascertained. 
The  total  center  cost  is  $975.62,  and  the  office 
cost  is  $264.29,  which  is  27  per  cent  as  follows : 

$264.29    -^    $975.62    =    27-\-% 

The  office  expense  is  distributed  according 
to  this  result  as  follows: 

Cost  of  Percent  Total 

Center                                  Center  Office  Exp.  Dcpt. 

Composing  room $610.99  X     27%  =  $164.97 

Cylinder  press 105.96  X     27%  =  28.61 

Job  press 160.96  X     27%  ==  43.46 

Bindery 97.71  X     27%  =  26.38 

$263.42 

This  is  87  cents  less  than  the  office  expense, 
which  amount  is  added  to  the  centers  with  the 
highest  production. 

These  amounts  are  added  to  the  direct 
center  costs  as  follows: 


118 


HOW  TO  FIGURE  COSTS 


Comp.  Cyl.  Jobbers  Bind'y 
Direct  center  costs. .  .$610.99  $105.96  $160.96  $97.71 
Dist.  office  expense..  165.55*      28.61        43.75*     26.38 


Total    $776.54    $134.57    $204.71  $124.09 

The  sold-hour  costs  are  then  found  by 
dividing  the  total  center  costs  by  the  sold  or 
chargeable  hours  as  follows: 

Cost  per 
Center  Total  Cost    Sold  Hrs.     Hour 

Composing  room   $776.54    -r-     265     =     $2.93 

Cylinder  press 134.57    -^      51     =      2.64 — 

Job  press  204.71     -^     106    =       1.93+ 

Bindery    124.09    -f-      56    -=      2.22— 

This  is  the  method  adopted  by  the  American 
Printers  Cost  Commission  and  perliaps  more 
universally  used  than  any  other.  The  general 
result  in  large  offices  is  to  reduce  the  bindery 
hand  work,  such  as  folding,  and  increase  the 
cost  of  composition  and  cylinder  press  work. 

Extension  Value — While  both  the  sold- 
hour  and  department  cost  methods  have  strong 
advocates  the  theory  of  distributing  office  ex- 
pense on  the  basis  of  the  extended  values  is 
being  used  as  a  compromise. 

♦Fifty-eight  cents  is  added  to  the  composition  and  29  cents 
to  the  job  presses  to  equalize  the  cost. 


OFFICE  EXPENSE  BURDEN      119 

Argument — The  office  expense  is  largely 
created  in  making  sales,  and  the  sales  are 
based  on  the  value  at  which  the  product  is 
sold,  therefore  the  office  expense  should  be 
distributed  to  the  various  centers,  according 
to  the  extended  values  of  the  sold  hours. 

This  is  practically  the  method  described  in 
"Figuring  Selling  Expense,"  but  for  compari- 
son the  example  of  how  this  works  out  is 
given  here: 

Example — Refer  to  "Figuring  Selling  Ex- 
pense," and  the  total  value  of  the  extended 
rates  of  the  sold  hours  will  be  found  to  be 
$1048.20.  The  office  expense  is  $264.29,  which 
is  25.2  per  cent  as  follows: 

$264.29    ^    $1,048.20    =    25.2+% 

The  office  expense  figured  on  this  basis 
gives  the  result  as  follows: 

Percent 
Center  Ext.  Values     Office  Exp.     Totals 

Composing  room $636.00     X     25.2    =    $160.27 

Cylinder  press  153.00     X     25.2    =        38.56 

Job  press 169.60     X     25.2     =        42.74 

Bindery 89.60     X     25.2    =        22.58 

$264.15 

This  is  14  cents  less  than  the  exact  sum, 
and  this  amount  is  added  to  the  most  active 
centers  to  equalize  the  office  expense. 


f. 


ij  < 


120 


HOW  TO  FIGURE  COSTS 


PAY-ROLL  HOURS 


121 


■.i      I 


:>! 


The  direct  center  costs  and  the  office  ex- 
penses are  then  added  to  get  the  total  center 
costs  and  the  result  is  as  follows: 

Comp.  Cyl.P.  Jobbers  Bind'y 
Direct  center  cost  .  .$636.00  $153.00  $169.()0  $  89.60 
Dist.  office  expense..  160.37*      38.60*      42.74        22.58 

Total    $796.37    $191.60    $212.34    $112.18 

The  sold-hour  costs  are  then  found  by  divid- 
ing the  total  center  costs  by  the  sold  or 
chargeable  hours  as  follows: 


Center 


Cost 
Total  Cost  Sold  Hours  Per  Hr. 


Composing  room   $796.37 

Cylinder  press    191 .60    -^ 

Job  press 212.34    --=- 

Bindery    112.18 


265 
51 

106 
56 


$3.01— 
3.76— 
2.00+ 
2.00+ 


These  three  methods  are  the  ones  most 
used,  and  to  the  cost  student  they  present 
many  interesting  points.  They  are  presented 
without  recommendation,  as  each  is  adaptable 
according  to  the  plant  and  conditions. 
Two  other  methods  are  as  follows: 
Pay  Roll — A  few  use  the  pay  roll  as  a 
basis  for  distribution  of  office  expenses,  in- 


*Ten  cents  is  added  to  the  composition  and  four  cents  to 
cylinder  press  to  equalize  the  office  expense. 


/ 


V 


eluding  foreman's  salary,  etc.  The  general 
principles  of  total  direct  center  cost  are  used, 
except  that  the  total  pay  roll  of  each  center 
is  the  basis  of  distribution.  Many  plants  have 
departments  with  piece  workers,  and  this 
method  is  used  in  these  cases. 

Pay  Roll  Hours — The  method  used  is  the 
same  as  the  sold  hours,  except  the  total  pay 
roll  hours  of  each  center  are  used  instead, 
otherwise  there  is  no  difference.  The  argument 
is  that  the  non-chargeable  time  should  bear  a 
burden  of  the  cost,  and  therefore  the  total  pay 
roll  hours  plan  is  most  equitable  and  logical. 

It  is  well  to  bear  in  mind,  however,  that  in 
some  centers  the  non-chargeable  time  is  only 
20  to  25  per  cent  of  the  pay  roll  hours  while 
in  others  it  may  run  as  high  as  40  to  50  per 
cent,  while  in  some  combination  newspaper 
and  job  plants  the  cylinder  press,  being  used 
for  little  else  than  newspaper  work  the  per- 
centage of  non-chargeable  time  may  be  as 
high  as  50  per  cent  of  the  pay  roll  hours 
constantly. 

The  writer  has  tried  to  present  plainly  each 
step  in  figuring  costs  by  productive  centers  as 
it  is  done  in  a  printing  office.  There  is  no 
reason  why  this  same  method  could  not  be 


"11 


122        HOW  TO  FIGURE  COSTS 

used  in  every  class  of  manufacturing  plant, 
with  but  slight  changes. 

The  cost  clerk,  with  the  examples  given 
here,  should  have  no  trouble  in  figuring  the 
monthly  summary  of  costs  on  form  shown  as 
summary  of  costs  by  productive  centers  (page 
112)  or  an  adaptation. 

The  entire  blank  should  be  cross-added  and 
proven  to  be  correct  before  the  result  is 
accepted. 

Remember,  accuracy  is  the  chief  point  in 
figuring  costs.  The  future  of  your  business 
is  in  your  hands;  it  all  depends  upon  results, 
and  an  error  may  mean  loss  of  business  and 
complete  failure. 

QUESTIONS 
Can  each  item  of  expense  be  traced  and  charged 

against  the  right  productive  center? 
What  shall  be  done  with  the  office  expense? 
What  is  the  sold  hour  method? 
Give  an  example. 

What  is  the  extension  value  method? 
Give  an  example. 
What  is  the  Standard  method? 
Give  an  example. 
What  is  the  pay  roll  method? 
Where  is  this  used? 
What  is  the  pay  roll  hour  method? 
Wherein  does  it  differ  from  the  others? 

What  one  thing  is  the  most  important  to  all  cost 
keeping? 


I. 

2. 

3- 

4- 

5- 
6. 

7- 
8. 

p. 

10. 

II. 

12. 

13- 


-'■■■ 


H 


XIII 
ANSWERS  TO  QUESTIONS 

There  are  any  number  of  important  ques- 
tions that  may  arise  in  the  figuring  of  costs, 
most  of  which  apply  to  individual  cases,  or  ex- 
ceptional cases  only.  During  the  past  few 
years  many  questions,  some  important,  and 
others  not  so  important,  have  been  asked  me, 
and  I  have  felt  that  this  book  would  be  in- 
complete without  adding  to  it  answers  to 
some  of  the  most  important  questions  asked. 

Advance  proofs  of  this  book  have  been  sent 
to  several  critics,  mainly  to  learn  if  anything 
important  had  been  omitted.  Attention  was 
called  to  several  minor  matters,  and  some 
took  exception  to  certain  methods  shown.  I 
also  can  take  exception  to  some  given,  but  in 
most  cases  I  have  presented  what  was  the  lat- 
est method,  :and,  when  possible,  two  ways  to 
figure  a  certain  item,  wherein  either  way 
would  not  make  any  great  difference  in  the 
result. 

123 


"f 


"1 


124         HOW  TO  FIGURE  COSTS 

The  appended  questions  and  answers  must 
not  be  considered  primarily  a  part  of  ''How  to 
Figure  Costs,"  but  rather  a  help  in  seeking 
light  on  certain  problems  that  have  arisen.  I 
believe  they  will  be  a  great  help  to  the  student 
of  costs  and  to  the  cost  clerk. 

WAGES  PLUS  OVERHEAD  TO  SECURIL  COSTS 
Question — /  have  been  very  much  interested 
in  the  Cost  Calculator  issued  by  Mr.  George 
Benedict  of  Chicago,  where  he  uses  wages  as  a 
basis  of  figuring  hour  costs.  Some  of  my  friends 
state  that  the  results  he  shows  are  exceedingly 
accurate.  Can  I  safely  use  this  Calculator  for 
my  costs,  and  thus  figure  what  I  make  or  lose  on 
my  job  work?  j^   q 

Answer— I  want  to  say  that  Mr.  Benedict 
deserves  a  great  deal  of  praise  in  getting  out 
the  Cost  Calculator  of  which  you  write.  I 
am  not  an  admirer  of  costs  based  on  wages, 
but  Mr.  Benedict  has  added  some  new  fea- 
tures, and  his  results  in  general  coincide  with 
those  secured  by  the  productive  center  sys- 
tems. But  to  use  the  figures  given  as  a  basis 
of  cost,  or  instead  of  a  cost  system,  without 
attempting  to  prove  them  correct  as  applied 
to  a  plant,  is  a  pretty  dangerous  proceeding. 


BENEDICTS  CALCULATOR       125 

I  grant  that  one  may  not  go  far  wrong,  and 
possibly  as  a  basis  of  figuring,  the  Calculator 
is  a  mighty  good  thing.  It  is  a  long  way  better 
than  using  no  method  at  all.  You  will  have 
to  accept,  however,  the  figures  given  as  true. 

Mr.  Benedict  has  based  his  figures  on  the 
proposition  that  the  average  workman  pro- 
duces but  40  hours  a  week,  or  rather,  out  of 
the  total  hours  worked,  but  40  are  sold.  This 
amount  he  has  been  able  to  arrive  at  by  fig- 
ures furnished  from  those  operating  produc- 
tive center  cost  systems. 

As  a  matter  of  fact  several  centers  produce 
more  than  40  hours  a  week  for  each  workman, 
and  others  much  less.  The  average,  however, 
is  nearly  the  amount  given  by  Mr.  Benedict. 

The  total  expense  of  running  a  plant — less 
interest  on  investment  and  replacement — is 
found  and  compared  with  the  total  productive 
wages  paid  workmen.  The  surprising  fact  is 
that  the  amounts  seem  about  even  in  nearly 
all  plants.  You  can  ascertain  if  this  is  true 
in  your  plant  by  adding  up  your  general  ex- 
pense and  then  the  wages  paid  and  find  the 
proportion.  The  following  example  will  give 
an  idea  as  to  how  this  should  be  done. 


126         HOW  TO  FIGI^RE  COSTS 

Productive  wages   $595.70 

Rent,  etc $  80.0() 

Power    13.00 

Selling  expense 104.82 

Light    2.16 

Spoiled  work   6.42 

Department  expenses 6.35 

Office  salaries   124.a) 

Commercial  investment 2.95 

Foreman^s  salary  232.a)      571.70 

Total  expenses  $1,167.40 

Wages  are  51  per  cent  of  the  expense,  as  fol- 
lows: 

$595.70  ~  $1167.40  =  51+% 


These  figures  are  taken  from  the  summary 
sheet  on  page  113  and  show  how  closely  wages 
and  expenses  are  related.  Nearly  every  print- 
ing office  will  be  astonished  as  to  how  close 
the  figures  will  come  to  being  of  equal  amount. 

On  this  basis  of  fact  that  the  expenses  are 
nearly  equal,  Mr.  Benedict  doubled  the  wage 
of  the  workman,  and  divided  the  weekly  wage 
by  40  hours,  and  thus  got  the  cost-hour  wage. 

Example — A  workman  is  paid  $20.00  a  week. 
This  amount  plus  the  percentage  of  other  ex- 
penses makes  the  wage  $40.00  a  week.     This 


INTEREST  AND  REPLACEMENT    127 

amount  divided  by  40  hours  gives  the  result 
as  $1.00  an  hour. 

Therefore,  a  workman  being  paid  the  wage 
of  $20.00  a  week,  it  actually  costs  $1.00  an  hour 
for  his  time,  but  this  is  without  his  using  a 
single    piece    of    equipment    of    any    nature. 
There  is  no  interest  on  investment  or  replace- 
ment included  in  the  amount  whatever.     How 
then  is  this  amount  cared  for?     Here  is  where 
Mr.   Benedict  is  entitled  to  a  great  deal  of 
credit.     He  has  made  up  his  table  with  the 
various  wages  paid,  and  by  a  simple  method, 
the  interest  and  replacement  is  taken  care  of 
by  adding  $2.00  a  week  to  the  wage  of  each 
man,  per  $1,000  worth  of  material  or  machine 
that  he  uses.     And  again  the  figures  are  as- 
tonishingly near  correct  as  an  average. 

A  machine  worth  $1,000  would  be  charged 
with  $60.00  interest  a  year,  $100.00  replacement, 
and  about  $48.00  in  taxes,  repairs  and  other  in- 
cidentaly  amounting  to  $208.00  a  year,  or  for  52 
weeks  at  the  rate  of  $4.00  per  week.  As  the 
wages  of  the  workman  are  doubled,  thus  by 
advancing  the  scale  $2.00  a  week  the  $4.00  a 
week  for  these  items  is  taken  care  of. 

Should,  however,  the  productive  time  fall 
below  that  of  40  hours  for  each  workman, 
then  the  product  would  be  sold  at  a  loss. 


1 

I 


128         HOW  TO  FIGURE  COSTS 

Using  any  such  system  will  not  tell  what 
departments  are  costing  too  much,  or  where 
the  big  losses  may  be.  It  is  good  only  as  an 
average  condition,  but  is  far  from  being  abso- 
lutely accurate. 

I  am  glad  to  answer  this  question,  as  there 
may  be  some  misunderstanding  in  regard  to 
what  I  have  said  about  basing  costs  according 
to  the  wage  paid  workmen.  As  a  matter  of 
fact,  the  Cost  Calculator  may  have  to  be 
changed  in  a  few  years,  when  results  from  the 
productive  center  cost  s>stems  show  that  it  is 
not  correct.  The  Calculator  is  based  on  re- 
sults from  productive  center  systems,  and  this 
IS  what  makes  it  so  nearly  correct.  Without 
this  proof,  however,  the  Calculator  would  not 
be  of  much  value. 

There  is  no  disguising  the  fact  that  high 
wages  are  paid  to  men  who  operate  large  ma- 
chines, using  a  large  floor  space,  and  other- 
wise generally  in  proT)ortion  to  the  wages 
paid.  The  cheapest  help  is  in  the  bindery, 
where  very  little  floor  space  per  emi)lovee  is 
used,  and  where  a  foreman  supervises  the 
M^ork  of  a  large  number  of  people.  This  con- 
dition is  what  makes  possible  the  seeming  ac- 
curacy of  the  Calculator.     The  only  place  it 


PRESS  COSTS  TOO  LOW         129 
may  go   wrong,   is  where   there  are  varying 

Zr  7i  "  '""^  ^^'"^  «"^-.  -d  an  hTuf 
ra  e  used  there  according  to  individual  wages 

paid  This  may  lead  to  inconsistencies,  and 
should  be  avoided.  The  proper  way  would  be 
to^average  the  wage  paid,  and  thL  find  an 

where  there  are,  say,  four  feeders  and  a  press- 
man.    Too  low  a  cost  may  be  gotten  here  a<= 
the  total  productive  hours'of  th^e  five  m^^  'no 
average  40  hours  a  week.     I  believe  the  wag 
of  the  pressman  should  be  added  to  the  wages 
of  the  feeders  and  then  an  hour  cost  found. 
n  the  pressman  receives  $32.00  a  week    and 
the  feeders  $20.00  each,  the  pressman  s  wage 
should   be   divided   among   the   feeders  Thus 
making  each  $28.00.     This  would  give  an  hour 

T  li'-'^'  "'^'^^^t  investment,  whkh  "s 
about  $500.00  per  employee,  making  5 Tents  an 
hour  more,  or  $1.45  an  hour. 

A  great  deal  more  could  be  written  on  this 
question    but  enough  is  given  here,   so   tha 
the  problem  will  be  understood,  and  if  desired 
one   can   f.gure   out   a   means   of  using   thi 
method  of  ascertaining  costs. 


f  {ili; 


1 


ll 


130         HOW  TO  FIGURE  COSTS 

OUTSIDE  WORK 

Question — Every  printer  has  a  greater  or 
less  amount  of  work  he  sends  to  someone  else  to 
do,  and  I  claim  that  this  ought  to  be  handled  in 
a  separate  department  (or  productive  center). 
My  plan  has  been  to  take  the  total  of  the  bills 
paid  for  outside  work,  and  treat  them  just  as  I 
do  the  known  outlay  for  an  interior  department. 
I  would  be  glad  to  hear  from  you  in  regard  to 
this  point,  c.  F.  C. 

Answer — The  purchase  of  outside  work, 
such  as  binding,  engraving,  machine  composi- 
tion, etc.,  can  be  very  easily  treated  as  a  sepa- 
rate productive  center.  The  group  method  of 
figuring  costs  helps  a  great  deal  in  this  prob- 
lem. If  a  storeroom  is  used,  a  certain  portion 
of  the  rent  may  be  charged  to  that  productive 
center.  Then  the  office  and  selling  expenses 
can  be  pro-rated  against  that  center  and  the 
others  according  to  the  amount  of  business  done 
and  goods  purchased.  For  instance:  Goods  to 
the  amount  of  $1,000  were  used  during  the 
month,  and  the  cost  of  operating  the  mechan- 
ical productive  centers  was  $3,000,  both  will 
total  $4,000.  If  the  total  office  and  selling 
expenses  were  $400,  then  one-fpurth  or  $100 


THE  COST  OF  SUPERVISION     131 

would  be  charged  against  merchandise,  and 
three-fourths  or  $300  against  the  mechanical 
centers.  This  amount  should  be  added  to  the 
cost  of  the  merchandise  by  percentage  or 
otherwise. 

One  leading  cost  system  provides  that  all 
the  cost  of  handling  stock  shall  be  distributed 
against  the  hour  costs.  The  other  productive 
center  methods  do  not  do  this,  and  usually 
create  stock-handling  centers,  which  is  prac- 
tically what  is  given  above. 

If  a  stationery  store  be  run  in  connection 
with  a  printing  office,  care  must  be  exercised 
in  separating  the  different  items  of  expense 
in  order  that  the  store  shall  bear  a  just  burden 
of  the  cost,  otherwise  it  will  show  a  big  profit 
and  the  printing  office  a  loss. 

SUPERINTENDENCE  ONCE  MORE 

Question— Your  method  of  dividing  the  su- 
perintendent's salary  according  to  the  number  of 
foremen  does  not  seem  to  be  right.  Should  not 
his  salary  be  distributed  according  to  the  num- 
ber of  people  in  each  center,  or  according  to  the 
number  of  pay-roll  hours'^  To  my  mind  this  is 
the  best  and  most  practical  way.  E.  P. 

Answer— You    speak    of    "your    method" 


I 

f' 


i  r 


r 


132         HOW  TO  FIGURE  COSTS 

when  as  a  matter  of  fact  it  is  not  my  method 
at  all.  The  question  of  superintendence  came 
up  in  a  large  plant  some  time  ago,  and  several 
methods  were  discussed  as  to  the  right  one  to 
use.  Finally  careful  tab  was  kept  on  the  su- 
perintendent's time,  and  it  was  decided  that 
he  gave  about  equal  time  to  each  of  the  fore- 
men under  him,  and  then  his  salary  was  added 
to  that  of  the  foremen  pro-rata.  The  same 
proposition  has  come  up  several  times,  and 
when  carefully  analyzed  this  method  was 
used. 

Should  you  desire  to  use  the  pay  roll 
method,  or  any  other,  I  can  see  no  objection. 
You  will  find  that  it  makes  little  if  any  differ- 
ence in  the  hour  costs,  whichever  method  you 
use.  It  does  not  pay  to  split  hairs.  Adopt  a 
practical  method,  and  then  stick  to  it. 

A  NEWSPAPER-JOB  SHOP  COMBINATION 

Question — Shall  I  create  a  separate  center 
for  my  daily  and  weekly  newspaper,  and  find  out 
the  cost  in  that  way,  or  what  method  is  the  best 
to  pursue?  w.  M. 

Answer — If  your  newspaper  is  conducted 
independently  of  the  job  plant,  by  another  force 
of  workmen,  I  would  advise  creating  several 
productive  centers,  such  as,  machine  composi- 


NEWSPAPER  ADVERTISEMENTS   133 

tion,  ad.  composition,  make-up,  press,  stereo- 
typing, mailing,  etc.  Have  a  regular  tracer 
made  out  each  day  and  get  the  total  cost  for 
the  paper  each  issue.     This  is  the  best  way. 

One  publisher  makes  out  a  tracer  for  each 
ad.  and  gets  the  cost  of  setting  each  ad.  sep- 
arately. He  then  secures  the  cost  of  each  is- 
sue of  his  paper  without  the  cost  of  setting  the 
ads.  This  has  given  him  valuable  data,  and 
changed  a  great  many  notions  he  formerly 
had  as  to  what  to  charge  for  his  advertising. 

Where  there  is  a  combination  job  and  news- 
paper office,  a  regular  ticket  should  be  made 
out,  and  the  cost  of  each  issue  of  the  paper 
ascertained  the  same  as  though  it  were  an 
outside  job.  At  first,  several  publishers  used 
a  separate  center,  and  paid  but  very  little  at- 
tention to  the  paper,  as  they  wanted  the  cost 
system  principally  for  the  job  end.  After  a 
while  they  began  to  keep  costs  on  each  issue 
of  the  paper,  and  then  discovered  quite  a  few 
interesting  things.  This  is  the  only  practical 
method  and  gives  a  great  deal  more  valuable 
information. 


>   ' 


II 


I    : 


li 


134         HOW  TO  FIGURE  COSTS 
COST  OF  AD\  ERTISING 

Question — How  shall  /  find  out  zvhat  it  costs 
for  an  inch  of  advertising  in  my  paper?    L.A. 

Answer — This  is  a  very  mooted  question  at 
the  present  time,  but  I  believe  the  correct  way 
is  to  figure  the  mechanical  cost  of  the  paper, 
as  shown  by  the  cost  system,  add  to  that  the 
cost  of  ready  prints  or  print  paper,  plates, 
special  features,  editors'  and  reporters'  salar- 
ies, and  other  incidental  items.  These  will 
give  the  gross  cost  of  the  paper. 

Deduct  from  this  the  amount  received  each 
week  from  subscriptions,  reading  notices,  and 
legals.  This  leaves  a  balance  that  the  adver- 
tising must  cover,  if  you  are  to  get  back  what 
you  put  into  the  newspaper.  Divide  this 
amount  by  the  number  of  inches  of  display  ad- 
vertising that  you  run,  and  the  result  will  give 
you  a  flat  cost  per  inch  for  your  advertising. 

This  method  is  still  the  one  in  general  use 
and  was  originally  used  and  adopted  by  the 
Cost  Committee  of  the  Minnesota  Editorial 
Association. 

A  more  logical  method  of  finding  advertis- 
ing costs  is  gradually  gaining  the  endorse- 
ment  of  newspaper  publishers.     In   the   past 


PUBLISHING  A  NEWSPAPER     135 

the  subscribers  have  never  paid  their  just 
share  of  the  expense  of  producing  the  news- 
paper largely  because  the  publisher  has  gone 
on  the  principle  that  there  was  no  monev  in 
the  subscriptions  anyway  and  that  if  thev  paid 
for  the  white  paper  it  was  all  that  could  be 
expected. 

This  method  of  arriving  at  advertising 
costs  IS  on  all  fours  with  the  method  previous- 
ly mentioned  in  that  the  getting  out  of  each 
issue  of  the  newspaper  is  handled  the  same  as 
though  it  were  an  outside  job.  The  cost  of 
the  stock  and  other  merchandise  should  be 
found  in  the  same  way  as  for  other  work. 

Find  the  cost  of  the  paper  used  for  the  is- 
sue and  to  this  amount  add  3  to  5  per  cent 
for  wastage  and  10  per  cent  for  handling  and 
storage.     To  this  should  be  added  the  cost  of 
the  ink,  for  an  8-page  6-column  sheet,  about 
25  cents  for  the  first  thousand  copies  and  15 
cents  for  each  additional  thousand.     Add  also 
the  cost  of  plates,  engravings,  special  features 
etc.,  the  labor  cost  of  editorial  and  reportorial 
time,  newspaper  postage  and  other  direct  ex- 
penses  that   are   properly   chargeable   to   the 
paper.    These  items  make  up  the  merchandise 
and  direct  expense  cost  of  production. 


\)'S 


III 


l» 


136 


HOW  TO  FIGURE  COSTS 


From  the  job  summary  of  the  cost  system 
records  find  the  cost  of  the  mechanical  pro- 
duction of  the  paper  including  the  folding, 
either  hand  or  machine,  addressing,  wrapping 
and  taking  to  the  postoffice.  The  cost  of 
wrapping  paper,  paste  and  twine  should  not 
be  charged  against  the  newspaper  as  these 
are  included  in  the  hour  costs  of  the  bindery 
as  direct  department  expense. 

The  totaling  of  these  items  of  cost  gives 
the  production  cost  of  each  issue  of  the  news- 
paper. As  previously  stated,  the  subscribers 
have  never  paid  their  just  share  of  the  produc- 
tion cost  of  the  newspaper  and  in  that  lies 
the  kernel  of  this  method  of  finding  the  cost 
of  advertising. 

Having  found  the  production  cost  of  the 
issue,  carefully  measure  up  the  number  of  col- 
umn inches  of  display  advertising  in  the  pa- 
per. Divide  this  by  the  total  number  of  column 
inches  in  the  issue  which  will  give  the  percent- 
age of  display  advertising  in  that  issue. 

As  an  example: — There  are  in  an  8-page  6- 
column  paper  960  column  inches  of  printed 
matter  and  of  this  amount  there  are  576  inches 
of  display  advertising,  or  60  per  cent  of  the 
space  in  that  issue. 


COST  PER  COLUMN  INCH        137 

567  -T-  960  =  60% 

To  find  the  cost  of  the  display  advertising 
per  mch,  figure  60  per  cent  of  the  total  cost 
of  the  issue  and  divide  it  by  the  576  inches. 
This  gives  the  production  cost  of  an  inch  of 
display  advertising. 

Readers,   legals   and   classified    advertising 
are  usually  sold  at  a  special  rate,  quite  differ- 
ent and  more  than  the  rate  for  display.     To 
fmd  the  cost  of  production  of  this  advertising 
take  the  remaining  40  per  cent  of  the  cost  of 
the  issue  and  divide  it  by  the  40  per  cent  of 
the  space.     In  the  example  given  this  would 
be  384  column  inches.    This  result  is  the  cost 
per  column  inch  of  the  reading  matter  includ- 
mg  these  special  classes  of  advertising      It  is 
then  only  necessary  to  multiply  the  number 
of  inches  of  each  class  of  this  advertising  by 
the  cost  per  inch  to  obtain  the  cost  of  each 
Having  the  cost  per  inch  it  is  an  easy  matter 
to     ascertain     the     cost     per     advertisement, 
inch,  square,  folio,  or  line,  as  may  be  desired 

From  the  above  data  it  is  easy  to  determine 
what  the  subscription  rate  should  be  for  the 
newspaper.  Total  the  cost  of  all  classes  of 
advertising;  deduct  that  amount  from  the  pro- 
duction  cost  of  that  issue.     This  leaves  the 


•« 


;!*" 


'II* 


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138         HOW  TO  FIGURE  COSTS 

cost  of  the  reading  matter.  If  this  issue  is  a 
fair  average  in  its  proportion  of  advertising 
and  reading  matter  it  is  only  necessary  to  mul- 
tiply this  amount  by  52,  add  any  subscription 
profit  deemed  expedient  and  divide  tliis  total 
by  the  average  number  of  paid  subscriptions. 
This  procedure  will  show  about  what  the 
subscription  rate  should  properly  be. 

The  above  method  of  finding  the  cost  of  ad- 
vertising is  logical  and  fair  to  the  advertiser, 
the  subscriber  and  the  publisher.  With  this 
method  advertisements  not  changed  in  each 
issue  automatically  care  for  themselves  as  the 
cost  of  such  change  will  appear  in  the  cost  of 
the  issue  in  which  such  change  is  made. 

Remember  that  this  method  gives  advertis- 
ing costs  and  not  selling  prices  and  that,  un- 
der modern  conditions,  a  profit  of  not  less 
than  25  per  cent  should  be  added  to  these 
costs. 


MORE  INVESTMENT  PROBLEMS  139 

COMMERCIAL  INVESTMENT 

Question — /  do   not   believe   that   accounts 
payable  should  be  deducted  from  the  items  of 
commercial     investment     or    working     capital. 
Money  owned  by  a  business  will  be  represented, 
in  one  of  four  items,   viz.:— plant   investment, 
accounts  receivable,  work  in  process  or  merchan- 
dise.   A    condition    is    conceivable    where    the 
amount  owed  would  exceed  the  total  of  the  last 
three  and  a  considerable  portion  of  the  first  one, 
but  that  would  not  indicate  that  the  capital  was 
not  there,  and  so  not  to  be  charged  with  interest. 
It  merely  indicates  that  the  ownership   of   the 
business  does  not  rest  with  the  ostensible  propri- 
etor, but  that  his  creditors'  capital  is  being  used 
to  run  the  business.  Most  assuredly,  he  will  be 
paying  interest  directly  or   indirectly,   and   the 
business  must  earn  it,  so  that  the  whole  capital 
involved  without  regard  to  liability  should  bear 
interest  as  part  of  the  expense  of  doing  business. 

S.  E. 

Answer— I  heartily  agree  with  you,  but 
some  printers  with  super-sensitive  minds  and 
afflicted  with  a  mania  to  protect  everyone  but 
themselves  and  their  families,  want  to  be 
"honest,''  and  hence  figure  out  accounts  pay- 


f 


140         HOW  TO  FIGURE  COSTS 

able.     I  believe  they  should  not  be  deducted, 
and  for  the  reasons  that  vou  state 

SELLING  HOUR  COSTS 

Question — As  the  extension  rates  are  used 
for  the  purpose  of  distributing  or  apportioning 
selling  expense,  which  in  turn,  is  computed  on 
the  basis  of  sales,  should  not  they  conform  to  the 
selling  value  of  the  chargeable  hours  as  nearly 
as  possible,  particularly  where  differing  rates  of 
profit  are  computed  on  the  various  operations, 
or  on  merchandise,  it  being,  of  course,  under- 
stood that  the  merchandise  entering  into  the 
completed  product  bears  its  proper  apportion- 
ment of  the  selling  expense.  A.  E. 

Answer— A  great  deal  depends  ui)on  the 
method  employed  in  figuring  cost  and  selling 
price  of  finished  jobs.  If  a  definite  selling 
price  per  hour  is  used,  that  amount  should  be 
used  as  an  extension  ratf.  If,  on  the  other 
hand,  the  hour  cost  plus  a  profit  by  some 
fixed  per  cent  on  the  total  cost  is  used,  then 
that  hour  rate  should  be  the  extension  rate. 
It  is  all  a  matter  of  method,  and  either  would 
be  perfectly  correct.  The  merchandise  pro- 
position is  answered  elsewhere. 


f 


INDEX 


Absorption  of  power  by  shaft- 
ing, 69 
Accountants'  method,  1 
Adjustment   of  rents,    16 
Administration  expense,  105 
Advertising  cost,  134 
Advertising  and  traveling 

expense,  99 
All  floor  space  of  equal  value. 
17 

All  wages  charged  to  centers, 

American  Printers  Cost  Com- 
mission, 118 
Answers  to  questions,  123 
Appraised  values  of  plant,  29 
Argument  and  examples,  114, 

116,   119 
Artificial    light    sometimes    a 
general  expense,  74 

Bad  accounts,  discounts,  100 

Basis  of  distribution  of 
charges,  54 

Being  a  good  fellow,  101 

Benedict,  Geo.  and  his  Calcu- 
lator. 124,  125,  126,  127.  128 

Bindery  expenses,  81;  inven- 
tory, 28 

Boss's  salary,  106 

Building  expense  13;  interest, 

Building  owned  by  plant 
owners,  13;  rental  consider- 
ation, location,  etc,   13,  14 

Burden  distribution,  53 

Capital  equipment,  47 
Carrying  customers,  108 
Cause  of  inefficiency,  25 
Charities,  donations,  dues,  100 
Commercial   investment,   105, 


Composing    room    inventory, 

Composition  expenses,  80 
Copyrights — no  interest  on,  48 
Cost   of   advertising,    134;    of 
supervision,  131 ;  per  column 
inch  in  newspaper,  136 

Departmental  payroll,  7,  8,  9 
Department    productive    cen- 
ter, 2;  time  summary  blank, 
4,  6 
Denham,  Robert  F.,  80 
Depreciation  on  buildings,  15 
Depreciation  table,  39 
Details  of  selling  expense,  97 
Direct  department  expense,  79 
Directing  foreman,  89 
Discounts,  deductions,  bad 

accounts,   100 
Distributing  power,  57 
Distribution  office  expense, 
115;   selling  expense,   102 
Donations,  charities,  dues,  100 

Efficiency  costs,  3 

Efficiency  of  the  workmen,  2 

Efficient  men  need  less 
supervision,  2 

Elevator  expense  dis- 
tribution, 77 

Example  of  cost  of  eight- 
page,  six-column  news- 
paper, 136 

Examples,  interest  on  invest- 
ment, 51;  replacements,  41, 

Expense  of  doing  business, 
105 

Expenses    surrounding   bind- 
ery, 81;  composing  room, 
80;  press  room,  80 

Expense  to  be  charged 
direct,  80 


142 


INDEX 


I 
I 


Few  printers  know  plant 
values,  26 

Figuring  building  expense,  13; 
interest,  45;  inventory,  25; 
"ght,  toilet  and  elevator  ex- 
pense,  71;   replacement 
values,  37 

Finding  floor  space  cost  per 
unit,  23;  horse  power  hour 
cost,  61 

Floor  space,  13;  diagram,  19; 
m  terms  of  units,  21 

Foremen's  salaries,  89 

Gasoline  or  steam  engine 

cost,  62 
General  plant,  newspaper,  132 
Good  fellow,  being  a,   101 
Goodwill,  no  interest 'on,  48 

Handling  stock  costs,  85 
Heat,  janitors,  repairs,  22 
Horse  power  divisions,  67 
How  to  treat  spoiled  work, 
81,  82 

Importance  of  machinery 
values,  26 

Inch  or  column  cost,  137 

Individual  motors,  60;  time 
summary  blank,  6 

Insurance,  taxes,  52 

Interest  and  depreciation  on 
buildmgs,  15 

^"ferest  on  borrowed  money. 
107;  on  mvestment,  45;  on 
own  money.  107;  rates  of,  49 

Inventory  blank,  30;  valua- 
tion, 28 

Invested    money    must    earn 

mterest,  25 
Investment,  insurance,  taxes 

—interest  on,  45 
Items  in  selling  expense,  97 

Janitor  service,  heat,  etc,  22 


INDEX 


Keep  plant  young,  38 

Labor  cost— how  arrived  at,  7 
Layout  of  plant,  19,  59 
Light,  toilet,  elevator  expense, 

Lo  iding,  artificial  light,  74 
Location  of  front  office,  16 
Low  margin  of  profit,  50 

Machine  on  light  circuit,  64 
^vlachinery  and  material   list- 
ed in  productive  centers,  26 
Man  working  in  several 
centers,  5;  blank  to  fit 
such  cases,  4 
Marketable  values  of  plant,  28 
^iinnesota  Editorial  Associa- 
tion, 134 

Money  invested  in  stock,  109; 
tied  up  in  work  on  hand,  109 

Neglect  may  mean  failure,  108 
Newspaper— advertising,  cost, 
subscriptions,  133,  136,  138 
Newspaper  and  job  plant,  132 
Newspaper  treated  as  an  out- 
side job,  135 
Non-producers,  90 

Obsolete  machinery,  25 
Office  expenses,  113;  expense 

burden,   119 
Office  inventory,  27 
^^^^^'"zation  dues,  charities. 

Outside  work,  130 

^^i^^^io?"^   payroll    hours, 
1^,  121 

Percentage  non-chargeable 
time,  9 

Perpetual  inventory,   109 
Plant  investment  expense,  49; 
layout,  59;  never  depre- 
ciates to  zero,  38 


143 


Present  cost  values  of  plant, 

Press  costs  too  low,  129 
Pressroom  expenses,  80;  in- 
ventory, 27 
Printer  as  a  landlord,  14,  15 
Private  power  plant,  68  ' 
Production  center  method,  1; 
centers  and  floor  space.  20 ' 

Questions,  on  administrative 
expense,  111;  on  direct  ex- 
pense, 87;  on  floor  space, 
24;  on  foremen  and  super- 
intendents, 95;  on  interest, 
insurance,  etc.,  55;  on  in- 
ventory, 35;  on  light,  toilet 
and  elevator  expenses,  78; 
on  office  expense  and 'sold 
hours,  122;  on  payroll,  li- 
on power,  70;  on  replace- 
ments, 44;  on  selling  ex- 
pense, 104 

Rent,  heat,  janitor,  repairs,  23 
Keplacement  and  depreciation 

differentiated,  38 
Replacement  values,  37,  43 
Risk  in  printing  plants'  50 
Run-down   machinery  and 

material,  25 

Sad  commentary  on  business 

printers,  93 
Salaries  and  commissions  to 

salesmen,    98;    of    foremen 

and  superintendents,  89 
Salary  of  "the  boss,"  106 
Scrapped  machinery  checked 

off,  32 

Selling  expense,  97;  distribu- 
tion of,  102 
Selling  hour  costs,  140 


Shafting  and  belting,  69 
Spoilage  and  stock  handling 

expense,  79 
Spoiled   work  expense,  81;   a 

fixed  sum,  83 
Standard  method,  the,  118 
Stock  handling  by  weight,  86; 

storage  and  handling,  84 
Strict  account  of  dollars,  lax 

account  of  time,  93 
Subscription   rates   for  news- 
paper, 138 
Summary  of  costs,  112 
Superintendence  problem,  131 
Superintendents'  salaries.  89 

Taxes,  insurance,  improve- 
ments, etc.,  on  buildings,  15 
Telephone,  telegram,  toll,  101 
Ten  percent  for  stock  hand- 
ling, 85 

Three  primary  productive 

centers,  26 
Time  summary  blank,  4,  6 
Toilet  expense  distribution,  76 
Total  cost  and  office  cost,  117 
Traveling  expense  and  adver- 
tising, 99 

Two  depreciation  plans,  39 
Type  salesman  as   appraiser, 

Units  of  floor  space,  21 
Usual  productive  centers,  3 

Wages  plus  overhead,  124 
Waste,  spoilage,  loss,  84 
Working  balance,  107;  capital 
and  investment,  45;  greater 
than  equipment  investment. 

Working  foreman,  89 
Work  in  process,  46,  47 


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END  OF 
TITLE 


